All the Cool Green Building People will be in Memphis Next Week

The process of updating the 2012 International Green Construction Code moves to Memphis next week.

The IgCC provides model code language, to be adopted by local governments as an overlay to existing codes to establish “baseline regulations for new and existing buildings related to energy conservation, water efficiency, building owner responsibilities, site impacts, building waste, and materials” and other matters. 

It is surprising to some that adoption of the IgCC across the country has not been faster and broader. It may be that mandatory green building codes are controversial and fly in the face on the tenets of green building as voluntary stewardship of the Earth; which would explain the large market share that LEED has, as a voluntary third party green building rating system. But a better explanation may be that the IgCC needs to find its place among standards, rating systems and codes; which is a balancing act between the hard left environmental extremists and the conservative engineering based code officials? And that is what is going to happen in Memphis.

The ICC’s new cloud based code development system “cdpACCESS” will be used for the first time for offsite comments to the 2015 IgCC, but the action will be on the ground in Memphis.

Proposed IgCC changes submitted have been posted online since March 10th for public review. The changes will be heard at two Committee Action Hearings conducted April 27th through May 4th in Memphis. The hearings will also be webcast live.

There are more than 900 changes proposed ranging from clarifying confusing text to updating requirements to reflect the best science evolved since 2012. By way of example, one positive change is GC 159-14, being advanced by the National Asphalt Pavement Association, to revise IgCC section 408.2.4. Pervious and Permeable Pavement, to now refer only to permeable pavements defined as having an air void of at least 15% versus the current measure of a percolation rate of 2 gallons per minute per square foot. Recent research describes how permeable pavements can not only manage stormwater but also mitigate urban heat island effect due to the high air void nature.

NAPA is also proposing GC 156-14 to delete IgCC section 408.2.1 describing site hardscape material as having a solar reflectance value of not less than 0.30. This is significant because the IgCC mandates heat island mitigation for not less than 50% of site hardscape, including that the hardscape materials meet that requirement. Given the growing body of evidence of unintended consequences associated with reflective pavements and the potential negative impact they may have on energy usage, it is time ICC members accept the code may have gotten ahead of the science and be prepared to eliminate provision.

The results of the hearing (to accept, reject or accept with modifications) each IgCC change proposal, will be posted online. A public comment period will then be conducted until July 16, 2014, where any member of the public may provide written comments.

Public Comment Hearings will be held in Ft. Lauderdale between October 1 and 7, 2014.  Voting on the final action on the public comments will be done by governmental ICC members both at the hearing and for a two week period afterward with cdpACCESS.

The resulting document, the 2015 IgCC will be released for use in the calendar year 2015 and will offer a more robust and greener Green Construction Code.

Pollution Legal Liability Insurance More Valuable as a Result of High Court Ruling

Insurance companies cannot recover environmental cleanup costs paid to their insured under the federal Comprehensive Environmental Response, Compensation and Liability Act, commonly known as Superfund, from another Potentially Responsible Party (unless their insured had first pursued a separate claim to recover the cleanup costs from that PRP). 

CERCLA was enacted in the wake of the discovery of toxic waste dumping such as Love Canal and Times Beach in the 1970s, The CERCLA process can be complex and toxic waste cleanup costs commonly run into the Millions of dollars, but the aim is the cleanup of toxic sites.

Insurance has become a mechanism for managing the risk of unanticipated costs incurred to clean up a property that an owner may have acquired not knowing it was contaminated or that may later become contaminated from migration of toxics onto the property. Among the most common of the insurance coverages is a pollution legal liability policy.

In this potentially far reaching case, the U.S. Supreme Court declined to review a decision of the Ninth Circuit Court of Appeals in Chubb Custom Insurance Company v. Space Systems/Loral, et al, leaving that decision in place.

Chubb had issued a pollution legal liability insurance policy to Taube-Koret Campus for Jewish Life covering, among other things, possible remediation costs related to certain pollution incidents on its property.

Pursuant to the policy, Chubb ultimately paid Taube-Koret $2.4 Million as reimbursement for Taube-Koret’s cleanup costs of contaminants that migrated onto its property. The gravamen of Chubb’s complaint was that Loral and others should be held jointly and severally liable for Taube-Koret’s costs because they released the toxic substances that migrated to Taube-Koret’s property from surrounding land that they owned and operated at various times.

The Ninth Circuit held that the insurance company lacked standing to bring suit under CERCLA § 107(a) because “it” did not incur any “costs of response” related to the cleanup of a polluted site, and because the common law principle of subrogation does not apply to § 107(a). The court held that the insurance company could not bring a subrogation claim under CERLCA § 112(c) because the company did not allege that the insured was a “claimant,” or that it had made a claim either to the Superfund or to a potentially liable party.

This is clearly among the most definitive CERCLA decisions in recent years. And the Supreme Court’s denial of certiorari review makes certain that the CERCLA statute allows recourse to recover money spent on environmental cleanups as expressly authorized by Congress when creating the law; and, having the result of making environmental insurance more valuable.   

Proposals for changes to the International Green Construction Code are due by January 10

The process of updating the 2012 International Green Construction Code has commenced.

In fact, proposals for changes to the International Code Council’s “Green Construction Code” have been accepted since November and are due not later than January 10, 2014. Proposed IgCC changes are accepted from any member of the public. This is your opportunity to effect change in the environmental industrial complex.

The IgCC first debuted with public version 2.0 in November 2010. 

The IgCC is a collaborative effort of the International Code Council, the USGBC, the American Institute of Architects, ASTM International, the American Society of Heating, Refrigerating and Air-Conditioning Engineers, and the Illuminating Engineering Society to be administered by local code officials as an overlay on existing construction and energy codes in the ICC codes family.

The IgCC provides model code language, to be adopted by local governments as an overlay to existing codes working in tandem with the administrative requirements of other adopted codes, to establish “baseline regulations for new and existing buildings related to energy conservation, water efficiency, building owner responsibilities, site impacts, building waste, and materials” and other matters.

The IgCC contains numerous jurisdictional and project electives that allow adopting jurisdictions and projects to customize code requirements to address local issues and selectively raise sustainability goals.

To date the IgCC is adopted or used as the basis for green building regulations in Richland, Washington; Keene, Hew Hampshire; Dallas, Texas; Maplewood, Minnesota; Fort Collins, Bolder, Carbondale and Snowmass, Colorado; Kayenta Township, Phoenix and Scottsdale, Arizona; Boynton Beach, Florida; Rhode Island; Maryland; Oregon; North Carolina; and, Washington DC.

But it is surprising to many that adoption has not been faster and broader. It may be that mandatory green building codes are controversial and fly in the face on the tenets of green building as voluntary stewardship of the Earth; which would explain the large market share that LEED has, as a voluntary third party green building rating system.

The ICC’s new cloud based code development system “cdpACCESS” will be used for the first time for the development of the 2015 IgCC.

Proposed IgCC changes submitted will be posted online by March 10, 2014 for public review. The changes will be heard by two technical committees in open hearings to be conducted April 27th through May 4th in Memphis.  The hearings will also be webcast live.

The results of the hearing (to accept, reject or accept with modifications) each IgCC change proposal, will be posted online for public review. A public comment period will then be conducted until July 16, 2014, where any member of the public may provide written comments.

Public Comment Hearings will be held during ICC’s Annual Conference in Ft. Lauderdale between October 1 and 7, 2014.  Voting on the final action on the public comments will be done by governmental ICC members both at the hearing and for a two week period afterward remotely. cdpACCESS will allow participation, including voting, when individuals cannot attend in person.

And significantly, ASHRAE Standard 189.1 will be republished in 2014 for adoption in the 2015 IgCC.

The resulting document, the 2015 IgCC will be released for use in the calendar year 2015 and will offer a more robust and greener Green Construction Code.

IgCC About To Get A Boost In Maryland

Maryland is primed to expand and incentivize use of the International Green Construction Code.  In 2011, Maryland was the first state in the country to authorize use of the IgCC for private and public construction.

It is not surprising the IgCC found Maryland fertile ground. Relative to its population, Maryland has more green building projects than any other state. The first certified LEED Platinum building was in Maryland. Maryland was one of the first states to offer a green building tax credit in 2001. All government construction must be LEED Silver. Today, 14 local governments in Maryland have enacted a green building initiative, including several that have mandatory green construction laws imposed on private building.  

But despite the fact that Maryland was the first state to “enable” local governments to implement the IgCC as a voluntary compliance alternative, not a single local government across the state has enacted the green building code. So, more than 2 years after the legislature acted, the IgCC can still not actually be utilized anywhere in Maryland.

It is anticipated that the situation will change dramatically.

The Maryland Green Building Council (an instrumentality of the state and not associated with the U.S. Green Building Council Maryland Chapter) is expected, before year’s end, to vote on a recommendation that the IgCC is a “cost-effective green building technology the State could possibly require to be used in the construction of State facilities.” This recommendation to the Secretaries of Departments of General Services and Budget & Management will allow newly constructed government buildings including schools, that today must be certified LEED Silver or higher, to alternatively be constructed to comply with the IgCC.

Second, the Council is also expected to recommend legislation be introduced in January 2014 before the state legislature expanding the definition of “high performance building” to also include IgCC projects. That expansion of the definition would allow not only LEED Silver certified private building, but also IgCC compliant projects to be eligible for state and local tax credits and other incentives.

And against that backdrop, it is expected that in early 2014 Baltimore City and Montgomery County, Maryland will each adopt a local IgCC enactment as a voluntary alternative to existing mandatory LEED-centric green building laws.

Maryland is about to expand and incentivize use of the IgCC as a voluntary green code, in a manner that may be an ideal model for other states. 

Federal Green Building Code Creates Unnecessary Risks and Costs

Someone recently asked me why I was baffled about the Department of Defense's decision to use both LEED and a green building code.  Here are two reasons: 

1.  The policy is a waste of taxpayer money.

2.  The policy unnecessarily increases risks for government contractors.

LEED + Green Building Code = Duplicative Costs

This concept is so logical to me that I have had trouble articulating it. 

The Department of Defense has proposed a green building code in order to streamline the process of applying for LEED certification. However, obtaining certification and complying with an overlapping green building code will result in duplicative costs, particularly on the administrative side. 

First, a contractor will have to review the green building code, ensure that it is complying with the code, and then submit documentation to the contracting officer to show compliance. 

Second, the contractor will have to review the LEED rating system, ensure that it is complying, and then submit separate documentation to the Green Building Certification Institute (GBCI) to apply for certification.  

Let's assume the best case scenario -- the green building code and LEED rating system requirements completely overlap (this will never happen).  The contractor will still have to compile separate documentation for a contracting officer and a GBCI reviewing authority.  And because the contracting officer and GBCI reviewing authority work independently, each individual will have separate questions, requests for clarifications and interpretations. 

Because the contractor will be working through two separate entities and submitting two sets of paperwork, the contractor will be completing twice as much work.  Twice as much work means the project will get more expensive. 

Two Interpretations Will Lead to Conflicts

It's human nature for two people to interpret the same clause two different ways.  This happens with LEED credits all the time.  When these differing interpretations occur, solutions can be worked out internally with GBCI.

But differing interpretations becomes a more risky proposition if the DoD simultaneously incorporates a green building code and LEED certification requirements in the same contract. 

On a typical DoD construction project, there is one contracting officer responsible for delivering a project on time, according to the contract and specifications.  The contracting officer has final authority to interpret and enforce the plans and specifications. 

Once the DoD institutes its green building code, a contracting officer will be responsible for interpreting and enforcing it. 

Simultaneously, a contractor working on a green building will also have to submit for LEED certification to the GBCI. 

You probably know where I am going with this.  The following scenarios will likely arise: 

  • Example A - Government Contractor is hired to construct a building that complies with both LEED and the DoD green building code.  Both LEED and the code require installation of a particular bike rack.  The contractor installs a bike rack and submits for a LEED credit related during the design phase.  GBCI approves the credit.  At the end of the project, the contracting officer finds the contractor did not install the specified bike rack.  Does the Contractor lose its certification?  Can the Contractor point to the approval of the LEED credit to overrule the contracting officer?  Does the GBCI have inherent authority to interpret a government contract specification? 

Or worse: 

  • Example B - Contractor completes a project that had to comply with the DoD green building code and get LEED certification.  A contracting officer finds the project was completed in accordance with all green building codes, including the installation of a bike rack.  Months later, GBCI finds that the contractor did not install the proper bike rack for LEED certification.  LEED certification is denied.  Who is right?  Did the Contractor breach its contract by not achieving LEED certification even though the contracting officer approved the bike rack?   

I don't know the answer to these questions.  Government contractors will face more risk if they have to comply with both a green building code and overlapping LEED certification.  There will be conflicting interpretations when contracting officers and GBCI reviewing authorities interpret the same requirements.

In short, this could get very messy. 

Highlights from the Greenbuild Legal Forum

This year, the US Green Building Council hosted the 2nd Annual Legal Forum at Greenbuild 2011.  The fact that lawyers are now allowed to congregate and make presentations at the Greenbuild conference is an achievement.  The green building community seems to understand that green buildings do present new risks that must be managed and attorneys can help.

Attorney Dan Sheridan provided a thorough recap of the Legal Forum on his blog, Legally Green.  There were two presentations that I found most interesting: 

  • Stephen Del Percio, of Green Real Estate Law Journal, reviewed the Federal Trade Commission's Green Guides, which regulate environmental claims.  Del Percio's presentation left me wondering how the Green Guides might apply to LEED plaques. 
  • The always entertaining Stuart Kaplow provided a list of ways to generate work as a green building attorney.  We will be discussing both of these presentations in future posts. 

It may surprise you to learn that I attended many non-legal presentations at Greenbuild as well.  If you would like to read more about some of these presentations and topics, please head over to Sustainable Cities Collective, where I published the following posts: 

The last post highlights a CBRE study, Dollars and Sense 2011, that will soon be released.  The report discloses that support for "green" waned among CBRE customers in 2011.  How will companies like CBRE shift gears if demand for green buildings decreases?  It should be an interesting topic for next year's Greenbuild in San Francisco.  

During his Greenbuild opening plenary, New York Times columnist Thomas Friedman stated that we would know a green revolution had occurred when the word "green" went away.  But I don't think that's what we are seeing with the CBRE study.  

What is happening to "green"?  

Breaking: Lawsuit Against USGBC Dismissed

The United States District Court for the Southern District of New York has dismissed Henry Gifford's lawsuit (PDF) against the US Green Building Council.

Gifford originally filed a class action lawsuit for $100 million dollars based on the alleged false advertising by the USGBC.  The lawsuit was later amended to only cover four plaintiffs but the allegations remained the same -- the USGBC was falsely claiming that LEED certified buildings were energy efficient. 

When Gifford filed his amended lawsuit, I questioned how he would prove he was harmed by the alleged false advertising.  It turns out that this was one of the lawsuit's fatal flaws.  

A plaintiff that brings a lawsuit must show standing in order to prove that the right person is bringing the lawsuit.  Since Gifford's allegations of false advertising fell under the Latham Act, he had to satisfy two tests to show standing: 

(1) The Strong Categorical Test

"The strong categorical test provides that 'the plaintiff must be a competitor of the defendant and allege a competitive injury.'"  The court held that Gifford, a building energy efficient consultant, and the USGBC, which certifies buildings, were not competitors because Gifford does not certify buidings.  

(2) The Reasonable Commercial Interest Test

Under the reasonable commercial interest approach, a plaintiff must demonstrate "both likely injury and a causal nexus to the false advertising." Perosnally, I always believed this test would be Gifford's downfall.  In holding that Gifford failed this test, the court explained that owners could hire any consultant they wanted for a LEED building.  Furthermore, the court posited that even if Gifford could show one owner that would only hire a LEED Accredited Professional consultant, it could not be proven that the owner's decision was based on the alleged false advertising.  

In short, the court deemed the lawsuit too speculative.  I think the court got it right.

What say you? 

Could Green Building Policy Trump a Federal Decision?

I have been hearing rumblings about federal green building policies that are being reduced or axed in Washington D.C.  Now I have a real life example to discuss. 

Kirk Dryer reported on the story last week, but I think its worth discussing further.

The Environmental Protection Agency (EPA) recently announced that it would be relocating its headquarters from downtown Kansas City, Kansas to a more rural location in Lenexa, Kansas.  The General Services Administration (GSA) was ultimately responsible for the real estate decision as it negotiated the EPA lease.  I suggest you read Kaid Benfield's scathing article about the decision if you would like more background. 

In the end, the GSA made a decision based on cost.  It is cheaper to rent in rural Kansas than it is in urban Kansas City.  But for smart growth advocates, the decision was a slap in the face. 

From a legal standpoint, the GSA's decision could actually be overturned in the name of green building policy.  The GSA's decision is being challenged through a bid protest filed by the local government and the Kansas City, Kansas landlord.  A bid protest is a legal challenge to the outcome of a government contract award. 

This appears to be a form of bid protest involving green building policy decisions:  

"The Unified Government of Wyandotte County and the landlord of the property, UrbanAmerica Advisors, have appealed to the GAO to reverse the decision.

...

The GSA submitted a briefing explaining the decision to the General Accounting Office (GAO) on Monday. The details of the motives, however, remain secret."

I am not privy to the bid protest documents, but I imagine the lawyers argued that the urban location should have been selected because it supports the environmental goals of Executive Order 13514.  I doubt the GAO would overturn the GSA decision based on this argument, but we shall see.  The GAO may have to determine whether the GSA can make decision based on cost, when conflicting environmental requirements also exist. 

What do you think? 

Photo credit: Jim Nix

LEED Certification: Revisiting Northland Pines High School

I was recently given the opportunity to interview Thomas Taylor and I jumped at the opportunity for two reasons.  First, Taylor wrote the forward for the first green building book I ever purchased.  Second, Taylor was involved with the Northland Pines High School project, which I have written about extensively.  Taylor currently works for Alberici’s sustainable consulting service, Vertegy.  This is part one of a fascinating two-part interview.  

Chris: I know you worked on the Northland Pines High School.  I want to give you an opportunity to clear up any misconceptions about the project or the LEED challenge that ensued.

Thomas: The certification process in the Northland Pines project was fairly typical. We were invited to be a part of the project delivery team by the design/build contractor. We participated in both the design and construction phases of the project. The design/build contractor, as well as the school board, had difficulties with certain individuals during the planning phase of the project. As the project progressed, this individual made appeals to the local code officials, accusing the design team of not meeting local codes with their design. These accusations were investigated and found to be unsubstantiated. The project proceeded through construction, the documentation was collected and the project was submitted to USGBC for review. The certification process followed the normal cycle, with USGBC responding to the first submission, requesting some additional documentation and clarifications and returning a final notification of award. There were no credits that were attempted that were denied.

Chris: What is your view of the LEED certification process?

Thomas: I do not think there is a problem with USGBC’s, or now GBCI’s, certification process. I have encountered many inconsistencies in the quality and focus of some reviews. However, now that GBCI is bringing all of the submission reviews back in house, I hope there will be greater consistency.

One potential issue is in the way USGBC handles the types of complaints that were involved with Northland Pines. By the time we were alerted that there was a problem or that the project was under investigation, USGBC had been looking into the accusations for some time. The complaint was received and the investigation commenced months before we even knew there was a problem. The extended team, including USGBC, spent a considerable amount of time and money to investigate something that turned out to be nothing. The group that lodged the complaint decided to drop the issue once the final decision was made by USGBC, but in my opinion based on the tone of various correspondence that they were not happy with the end result.

One thing that I learned from the experience was that whenever you ask several different professionals/engineers their opinion of a design, you will get several different opinions. Several of the written complaints stated that the design and system that was installed in the school did not comply with the requirements of ASHRAE. The independent engineer hired by USGBC stated that the complainants’ interpretation of ASHRAE was incorrect. This demonstrates how two different engineers can interpret the same document or design in two different ways. I am dealing with a similar situation right now on a different project where I have one designer stating that his design is a certain percentage more efficient than baseline and another designer arguing for a different type of system that could be even more efficient. My team is spending a considerable amount of time running energy models to prove and re-prove our initial results.

At the end of the day, even if USGBC retuned their certification process and did a physical inspection of the building as a part of the process, I do not think it would solve the types of problems that were encountered at Northland Pines. In one way, I think that if USGBC did send people out to the field, it may introduce an opportunity for even more subjectivity to the certification process. I do not think the process is perfect, but I am not sure changing it in this way would make it any better or stop the kinds of problems we had with Northland Pines.

Chris: How have you applied what you learned from Northland Pines in your more recent projects?

Thomas: Vertegy strives to be a center of excellence. This means that we always take the lessons learned from all our projects and use the experience to provide better services in the future. Just today, we used the experience of Northland Pines to explain to an owner why it is so important to correct even minor problems that show up on a Commissioning Authority’s deficiencies list. At any time in the future, someone could lodge a complaint with USGBC and the owner’s certification could be threatened.

 

Want to Pick My Green Building Legal Brain...for Free?

I am ready to hit the road and start talking about green building risk management.  I finally have enough cases and stories to weave together a compelling narrative about the topic.

And for a short time, I will give my presentation for free to interested companies. 

The presentation is entitled "LEEDigation: Current and Future Green Building Legal Issues."  It received great reviews from the crowd at the University of Kansas International Conference on Sustainable Design & Construction.  In fact, I was asked to make the same presentation for other companies and associations. 

I believe the presentation is unique in that we will discuss real life green building cases AND risk management strategies that companies can implement to avoid similar fates.  As I get more comfortable wearing my consulting hat, I am also getting more comfortable sharing risk management advice in lieu of litigation strategy. 

If your company has any interest in green building risks, liabilities and/or lawsuits, you will benefit from this presentation. 

If you are interested in hosting my free presentation, there are two options: 

  • We can setup a date at your company.  All I ask is that you cover travel expenses.
  • Or we can host a webinar for your company.  All I ask is that you cover the webinar costs. 

Sounds like a pretty good deal to me.  Why am I doing this?  I am interested in developing relationships with companies that could use my company's claims consulting and risk management services.  But more on that July 1. 

Please send me an email (chris@cheathamconsulting.com) so we can set it up.  Thanks! 

Green Performance Bonds Necessary But Risky

Ever since I read the D.C. Green Building Act and its "performance bond" requirement, I have been morbidly interested in the idea of LEED bonds.  When Kristen Bradley, at SuretyBonds.com, offered to write an article on the topic, I couldn't help but say yes.  SuretyBonds.com, a nationwide surety bond producer, works with a number of construction companies and distributes information to help keep the industry's professionals updated on developing regulations.

As the concern for environmentalism continues to grow, so, too, do the regulations and systems involved with green building. Entrepreneurs continue to develop new building practices and products, and keeping up with new green building regulations can be challenging for some contractors. The growing concern for protection related to green building practices has only increased as new green products and regulations are pushed onto the construction industry. One possible solution for guaranteeing a contractor's compliance is the use of green performance bonds. However, concern regarding their implementation and enforceability continues to be heavily debated among stakeholders throughout the industry.

Confusion surrounding the 2006 Green Building Act

In 2006 the D.C. City Council passed legislation that would require green performance bonds to be used on construction projects beginning in 2012. However, no such bond actually existed when the legislation was passed. Although some advocates think the legislation's enactment will be crucial for the green building industry, contractors and government agencies alike have been struggling to clarify what the act actually means. As the deadline approaches, many construction professionals in the area are still confused as to what exactly will be expected of them.

How green performance bonds would work

Green performance bonds are a specific type of surety bond. Although there are thousands of surety bond types available, they all function similarly to guarantee a certain level of performance. Government agencies typically mandate the use of surety bonds to protect public funds as well as consumer interest. Most contractors who work on public projects are probably familiar with how other forms of contractor bonding work. Green performance bonds work in the same way, but they are specific to green building practices. Each surety bond that's executed acts as a legally binding contract between three entities.

  1. The government agency or project owner that requires the bond acts as the obligee.
  2. The contractor required to purchase the bond acts as the principal.
  3. The agency that executes the bond acts as the surety.

When it comes to green performance bonds, the bond would offer a financial guarantee that the principal will adhere to certain green building regulations. If the contractor should fail to do so, the surety would be accountable for making sure the principal resolves the problem, which usually requires monetary compensation.

The likelihood of green performance bond implementation

There's no way to predict how exactly green performance bonds will be used in the future. For now, though, there's no question that project owners need a guaranteed way to collect recompense on problems resulting from negligent green building contractors. Likewise, contractors need a financial guarantee to protect themselves from personal liability if such problems were to arise. Unfortunately, this pushes a great deal of burden onto surety providers who might be skeptical to execute bonds on risky projects. This is, in fact, what most surety agencies try to avoid. Ultimately, government agencies' decisions regarding the use of green performance bonds will require an evaluative process. Once Washington D.C. clarifies its expectations and contractors there begin securing green performance bonds, the rest of the nation can begin analyzing just how effective the bonds are. 

Are You Sure Your Building is Certified?

If you ever question the value of green building certification, run a search for press releases touting LEED certification for new projects.  I see hundreds of these releases every week.  But if you are purchasing a LEED building or space, how can you ensure that it truly is LEED certified? 

Fidelity National Financial (FNF) created the LEED Project Certification Data Report (LEED Report)  to address this issue.  The LEED Report allows parties to "obtain data regarding a LEED project's certification status" for $1500 per project.  

In the image, you can see the categories covered by the LEED Report.  Of particular interest to me is the certification challenge status.  Could you imagine purchasing a property or space without knowledge that it was going through a LEED certification challenge?  The LEED Report presumably would prevent such a scenario.

I was also intrigued by the limited nature of the LEED Reports.  FNF makes it clear that the LEED Reports are not an insurance product: 

"The LEED Project Certification Data Report (Report) is not an insurance policy.  The purpose of the Report is to provide informational services, not to allocate risk. . . . [FNF] obtains data from the database used by the United States Green Building Council (USGBC) and Green Building Certification Institute (GBCI) and delivers the data to the Ordering Party for the benefit of the Principal.  [FNF] promises the Principal that the Report accurately reflects the information in the database.  If [FNF] provides information that does not accurately reflect what is in the database, [FNF] has limited liability and has no obligation to defend the Principal. . . . [FNF] has no other liability and under no circumstances, under any dispute, will [FNF's] liability to any Principal exceed $50,000."  

Fidelity National Financial is primarily known as a title insurance company.  Title insurance generally protects an owner from lawsuits arising from the ownership of a property.  But the LEED Reports are simply informational in nature -- they do not provide protection for an owner if problems arise out of a property's LEED certification.  

It seems there is an opportunity to create a LEED insurance product. 

What do you think? 

IRS To Audit Destiny USA's Green Bonds

Yesterday was tax day.  A few unlucky souls will face the prospect of an audit in the coming months.  But for the Destiny USA project, the IRS has already announced an audit of the project's $228 million Green Bonds.  

If you need background on the Destiny USA story, I would suggest you review the e-book I published on the subject.  In 2007, the developer of a large-scale mall project received $228 million from a federal Green Bonds program in exchange for installing green building and renewable energy technologies.  The developer recently revealed the many of the green technologies will not be incorporated as promised. 

As reported by Rick Moriarty, the Internal Revenue Service (IRS) notified the Syracuse Industrial Development Agency on March 17 that it would be auditing the Green Bonds issued by the Agency to the Destiny USA developer:

"The IRS notice states that the Destiny bonds were selected for examination 'because of information we received from external sources or developed internally that causes a concern that the debt issuance may fail one or more provisions' of the Internal Revenue Code.

Destiny said in a notice to the bond market that it believes it has met the requirements of the federal code relating to the bonds and is cooperating with the IRS."

The Internal Revenue Service (IRS) is the agency ultimately responsible for determining compliance with the Green Bonds requirements.  If the IRS were to determine that non-compliance occurred, then Destiny USA could lose hundreds of millions of dollars in estimated tax breaks. 

Keep in mind, the IRS issued its notice just seventeen days after the Agency and Developer were required to submit a letter stating whether compliance with the Green Bonds program occurred. The IRS moved quickly to get involved. 

What do you think will be the result of the IRS audit? 

If Green Materials Fail, Have We Failed?

When I first read about the Chesapeake Bay Foundation case, I thought of Peter Moonen.  Peter is the Leader of the Sustainable Building Coalition for the Canadian Wood Council.  He has been extolling the virtues of wood and green buildings for years.  Below, we discuss the benefits and pitfalls of parallam and other engineered wood products.  If you are interested in a guest post or interview with Green Building Law Update, please contact Kirk Dryer

Chris: I recently highlighted a lawsuit involving the use of Parallam.  Would you consider Parallam a green product?

Peter Moonen: Yes, Chris, I would consider Parallam a greener product relative to it's functional alternatives, and for a number of reasons:

  • Wood products are the only structural building material grown by the sun.
  • Wood products are renewable, reusable, recyclable, organic, biodegradable and, while growing, remove carbon dioxide and emit oxygen as a byproduct – how cool is that?
  • Parallam’s density means exceptional strength per volume and mass;
  • Allows for use of material that would not generally be used for structural purposes (i.e. smaller veneer sheets and strips);
  • Permits the production of large dimension structural products from smaller trees;
  • Permits higher utilization of the forest resource. The recovery efficiency from logs and veneer varies with each mill. Some mills buy peeled veneer, which results in a 95+% plus efficiency, the 5% being used for energy. Others process round logs with a 60-65% recovery. This may reduce the recovery based on veneer, but produces other products as a result -- lumber, chips, sawdust, biomass. Very little of any tree is wasted.
  • Zero off-gassing -- no urea formaldehyde resins are used;
  • In the South and East US and Eastern Canada, it is usually made from second growth southern yellow pine or yellow poplar. In Western Canada, the wood for Parallam is second-growth Douglas fir.
  • Plantation fibre is also suitable;
  • Pre-cut sizes reduce waste on site;
  • Like heavy timbers and glulam members, a large cross section of Parallam has proven to be resistant to fire.
  • As a high density material, Parallam sequesters more carbon than is emitted during its production.

Chris: Does Parallam fail more often compared to standard wood products?  

Peter Moonen: Every material has its strengths and its limitations. Designers, architects, engineers and other specifiers need to know what those capabilities and limitations are to ensure appropriate applications.

Like most wood products, parallel strand lumber is susceptible to the vagaries of nature. Water, intense sunlight, and blowing particles will take its toll on any exposed material – be it steel, concrete or wood – unless steps are taken to protect the material from those wearing forces.

When I talk to specifiers about materials I try to point out that no material is inherently bad or good, but how we use the product is what will determine its ability to endure.  How materials are designed into a structure is critical to the success of that structure. No responsible designer is going to place untreated steel in proximity to salt water or use concrete in a structural application without rebar. Likewise, wood that is not protected from the elements will not last as long as it could.

Simply put, and aside from manufacturing defects, if a material fails it is generally because WE failed the material.  We didn't understand the conditions under which the material should be used.  

A colleague of mine does excellent work explaining durability of wood products.  He explains there are principally three ways to make a wood product more durable:

  1. Durability by design (protecting the material from weathering factors by design),
  2. Durability by nature (choosing naturally durable species of wood for exterior use – like western red cedar) and
  3. Durability by treatment (or, as I say, durability out of a can) which can be expensive and needs to be done right using the right preservative and process for the use category. A suitable maintenance regime may also be important, especially for surface treatments.

Parallam, like all wood products, was never designed to be ‘bare-assed to the wind’.  In fact Parallam, because of its structure, accommodates pressure treatment well, when made with wood species such as southern yellow pine, and effectively treated Parallam has been used in underwater conditions as piling. However, if untreated Parallam is placed in a position to fail, it will, as will any material put under the wrong conditions.

Chris:  I have also read that Parallam is an engineered wood product.  What are the benefits of engineered wood products? 

Peter Moonen: In addition to the renewability and energy benefits of all wood products, the environmental benefits of most engineered wood products have a couple of additional benefits -- they preserve and they perform.

Engineered wood products extend the use of the forest resource by enabling a higher percentage of fibre use. The use of wood from residual sources, non-structural species, plantations and second growth forests reduces the pressure to harvest trees. 

As well, engineered products tend to be have higher load carrying ability than solid wood of the same dimension. This is due to more uniform structural properties because any deficiencies in the material (knots, cracks, etc) are either removed or offset by the manufacturing process.

I would have to add that, despite the added embodied energy or resin and heat to cure and process Parallam, it still sequesters a lot of carbon. Most engineered wood products result in a higher density, and therefore carbon intense wood products sequester CO2e and result in a net negative carbon footprint.  (CO2e stored minus CO2e to extract and produce)

Photo Credit: pnwra

Can You Guarantee LEED Certification?

Do you remember Energy Ace?  You may recall a series of posts I wrote about the company and it's LEED guarantee.  Today we are checking in with Energy Ace founder Wayne Robertson to get the low down on the LEED guarantee. 

Chris:  Please tell me about your "Green Guaranteed" program. 
 
Wayne:  Energy Ace created its “Green GuaranteedTM“ promise to express Energy Ace’s commitment to the LEED success of its clients’ projects and to provide our clients with a measure of confidence that their project will reach its LEED certification goal.  As far as we know, this offer is unique in the building sustainability industry.
 
Chris:  Who is interested in using your Green Guaranteed program? 
 
Wayne:  Green GuaranteedTM has attracted a lot of interest, when recently an architect asked us for that service vis-à-vis a city hall project for a small town that was making its initial venture into the LEEDTM world.  That is a good example of where Green GuaranteedTM is applicable:  where the client seeks reassurance that his LEED project will be successful. 

Another instance came up a few months ago from a major office park developer in our area who wanted to attract a Federal government tenant to lease 110,000SF of space in his park.  The proposed tenant had a LEED Silver requirement for this LEED CI project and the office park developer sought a measure of assurance that he could promise that to this prospective tenant.
 
Chris:  What sort of demand do you anticipate in the future? 
 
Wayne:  Our crystal ball shows that as the number of sustainability mandates and ordinances continue spread throughout the land, more and more architects, owners, developers and leasing agents will desire reassurance of some sort that their LEED project will be successful.

First LEED Platinum Building "At Risk of Collapse"?

I have one last green building legal development to tell you about before I take my hiatus. 

When people ask me about green building disputes, I tell them that they will arise from three scenarios.  A project may not comply with regulatory requirements -- i.e. Destiny USA.  Second, disputes may arise from green building certification -- i.e. Bain v. Vortex Architects (via Stephen Del Percio's Green Real Estate Law Journal).  And finally, new green building materials and techniques can lead to defects and litigation. 

We now have a lawsuit describing this third scenario: The Chesapeake Bay Foundation, Inc., et. al. v. Weyerhaeuser Company (PDF).  The lawsuit involves the first project to obtain LEED Platinum certification, the Chesapeake Bay Foundation's ("Foundation") Philip Merrill Environmental Center.  The project has received numerous awards and accolades from Treehugger

The following is a description of the Plaintiffs' allegations. 

The Project

The Foundation contracted with the architecture firm SmithGroup to design the project in 1998 and Clark Construction Group to build the project in 1999.

Because of its environmental mission, the Foundation wanted the project to incorporate "recycled and environmentally-friendly construction products. . . "  The design also included a roof truss system and various columns and beams that were exposed to the weather

The contract documents permitted the use of Parallel Strand Lumber -- or Parallams -- for the roof truss system, columns and beams.  According to the Foundation's website, Parallams are green because they are produced from fast-growth trees. 

Clark contracted with Trus Joist MacMillan, a subsidiary of Weyerhaeuser Company, in 2000 to supply the Parallams. Weyerhaeuser delivered parallams that had been treated with PolyClear 2000, after allegedly assuring SmithGroup that the treatment was suitable for exposed building components.  Weyerhaeuser allegedly never received approval to use PolyClear 2000. 

Construction was substantially complete December 7, 2000.  Shortly after completion, water intrusion was identified at various portions of the project.  Throughout 2003, various modifications were made, including adding a sealant to the Parallam, that resolved the leakage.

In 2009, the Foundation performed an inspection and observed deterioration of weather-exposed Parallams, including widespread rot.  A subsequent expert report asserted that "the Parallams had not been treated to the levels prescribed by the contract documents or else the preservative had deteriorated because it was unsuitable for the application." 

The Foundation, SmithGroup and Clark subsequently entered into an agreement to remediate the project and to pursue litigation against Weyerhaeuser. 

The Allegations

According to the lawsuit filed by the Foundation, SmithGroup and Clark, Weyerhaeuser provided "defective, inferior and or unsuitable building products" for the Foundation's project.  The lawsuit goes on to allege five causes of action: 

  • Breach of contract
  • Common law indemnity
  • Contribution
  • Negligent Misrepresentation; and
  • Negligence

Most interesting to me is the negligent misrepresentation argument, where the Plaintiffs divulge that the building is at risk of collapse: 

"As a result of Plaintiffs' reliance on Weyerhaeuser's assurances that Parallams pressure-treated with PolyClear 2000 was appropriate material for use in construction of the Project and that the preservative had been adequately applied -- which statements were untrue -- the structural integrity of the Project is in jeopardy and the building is now at risk of collapse.  Thus, the defective condition of the PolyClear 2000 has created a clear risk of death or serious injury at the project." 

The lawsuit goes on to assert damages in excess of $6,000,000. 

The Chesapeake Bay Foundation case is an example of green building litigation that can develop as a result of the materials and products that go into the project.  The Foundation chose specific products because of their environmental appeal.  But these products allegedly failed when exposed to the elements.  While this lawsuit could occur on any construction project, the introduction of new green materials can result in unanticipated results and lawsuits. 

Photo Credit: Miss Leslie

Did the USGBC Purchase Destiny USA Green Bonds?

I am wrapping up my discussion of the Destiny USA project this week with one final post.  You can select the Destiny USA tag to review all of the previously published posts on this topic.  I will also be publishing a compendium of posts on the topic -- plus bonus coverage -- later this week.  Thank you for reading. 

I am wrapping up the Destiny USA Debacle discussion with a truly bizarre story. 

When I first read Rick Moriarty’s story on the Destiny USA project, I was shocked to learn that the U.S. Green Building Council invested in the Green Bonds issued for the project.  Additional research turned up a USGBC press release from 2007 touting the purchase of the Green Bonds.  

Why did the USGBC’s involvement shock me?  

In order to qualify for $238 million in tax-exempt Green Bonds, the developer had to provide written assurances to the federal government, including written statements from the USGBC, that the project would achieve LEED certification.  Investors in the Green Bonds received tax-exempt returns based in part on the promises made by the Destiny USA developer to achieve LEED certification.  

By investing in Green Bonds, the USGBC would have been investing in bonds that received tax-free status that was dependent on the USGBC’s decisions and written assurances related to LEED certification.  That could be perceived as a conflict of interest.  

I contacted the USGBC to confirm the purchase of the Green Bonds.  

Here’s where the story becomes bizarre. According to the Judith Webb, Senior Vice President of Marketing & Communication, the USGBC did not purchase the Green Bonds:

“Unfortunately Rick Moriarity was mistaken — USGBC actually didn’t purchase the bond.  (In hindsight, when we didn’t make the purchase we should have taken the press release down, but that was before my time).”

What are your final thoughts on the Destiny USA Debacle?

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.

 

The Destiny USA Debacle: May It Please the IRS

I am publishing a series of posts on the Destiny USA Debacle -- the federally sponsored Green Bonds project that has failed to incorporate promised green building features.  To read all of the posts at once, you can download a PDF version now.  Or you can select the Destiny USA tag to review all of the published posts on this topic.  

This is the seminal post in the Destiny USA Debacle series because we cover the big issue -- did the Destiny USA project deliver on its Green Bonds promises?  As a brief recap:

  • The Destiny USA project received $238 million in tax-free investments created by the federal Green Bonds program.
  • In exchange, the Destiny USA developer made promises related to LEED certification, renewable energy systems, and brownfield redevelopment.  
  • The Destiny USA developer reportedly will not deliver the promised renewable energy systems, and the project’s ability to obtain LEED certification is in doubt.  
  • The IRS must decide whether the project complied with its Green Bonds promises.  An adverse ruling could mean the developer would face forfeiture of a Reserve Account containing $2.38 million, the revocation of tax exemptions, and angry bond investors looking for recourse.  
  • The Green Bonds issuer, the Syracuse Industrial Development Agency, had to submit a report to the IRS by the end of February describing whether the project has met its Green Bonds promises.   
On February 21, 2010, Syracuse Post-Dispatch reporter Rick Moriarty published a story that disclosed the contents of a draft letter addressed to the IRS by the Syracuse Industrial Development Agency.  In the letter, the Agency and developer first divulge that many of the green building and renewable energy features that were promised as part of the Green Bonds program will not be included in the completed project.  The letter blames the economy for changes to the project.  

The Agency and developer argue that other environmentally-friendly features have been included, like LEED-Gold certification.  This last claim is curious since construction is not completed and the US Green Building Council confirmed that the project had not actually received certification.  

The letter then moves to the crux of the compliance argument.  The Agency and developer assert that actual installation of renewable energy systems was not required.  Instead, the letter claims the developer was only required to make promises related to renewable energy and LEED certification in order to qualify for the bonds. They conclude that the financial benefits of the Green Bonds program and the forfeiture of the Reserve Account do not depend on actual achievement of the green building and renewable energy goals.  

If you would like to review the IRS Code requirements for Green Bonds, please see my post “Why the IRS is the Key Player.”  

How do you think the IRS will rule?

The Destiny USA Debacle: Destined for Trouble

I am publishing a series of posts on the Destiny USA Debacle -- the federally sponsored Green Bonds project that has failed to incorporate promised green building features.  To read all of the posts at once, select the Destiny USA tag

We have now set the scene for the Destiny USA debacle.  The key players have been described.  The federal Green Bonds program and the green building requirements have been reviewed.  And we have reviewed the penalties if the Green Bonds requirements are not met.  

But when construction started at Destiny USA, how did it go?  

Construction started in 2007.  By the summer of 2009, construction was reportedly 90 percent complete.  

Then, problems arose as Citigroup pulled financing for the project, and construction ceased:  

“Construction came to a halt in June 2009 when Citigroup stopped advancing money on a $155 million loan. The bank said it was concerned about cost overruns, construction delays and a lack of any signed leases for the expansion after nearly two and a half years of construction. It publicly called the project a failure.”  

As reported by Stephen Del Percio at the Green Real Estate Law Journal, litigation ensued as a result of Citibank’s decision.  Ultimately, as Del Percio explained, a New York appellate court upheld an Onondaga Supreme Court decision that Citigroup had to resume funding of Destiny’s construction loan because the project involved “unique” and “revolutionary” sustainable features.  In hindsight, it is interesting that many of these sustainable features actually may not have been included in the finished project.  

As reported February 20, 2011 by the intrepid Rick Moriarty, the Destiny USA project has scrapped many of the green building and renewable energy features that were originally promised to the federal government in exchange for $238 million in Green Bonds:

“There is no 45-megawatt electricity generating plant running on “biofuel” made from soybean oil and recycled cooking grease. If there were, it would be the largest such plant in the nation and consume more than one-third of the total U.S. biodiesel supply.

Nor are there 290,000 square feet of solar panels on the mall’s roofs and other surfaces, enough to blanket six football fields.

The fuel cells that were to make 7 megawatts of electricity, five times more than the nation’s largest existing commercial fuel-cell installation? Nowhere to be seen.”

The project has also reportedly not received LEED certification.  

As you may recall, the bond issuer, the Syracuse Industrial Development Agency, was facing a February 28 deadline to report to the IRS regarding the Destiny USA project’s compliance with the Green Bonds requirements.  If the IRS finds the project is not in compliance, the tax-exempt status of the bonds may be forfeited and a $2.38 million penalty would be assessed.  

What do you think the Syracuse Agency will tell the IRS? 
 

The Destiny USA Debacle: Why the IRS is the Key Player

I am publishing a series of posts on the Destiny USA Debacle -- the federally sponsored Green Bonds project that has failed to incorporate promised green building features.  To read all of the posts, you can select the Destiny USA tag to review all of the published posts on this topic.  Or check back later in the week for an e-book that includes all of the posts, plus bonus coverage. 

Today, we will take a closer look at the very important role played by the Internal Revenue Service (IRS) in the Destiny USA Debacle.  This post is paramount to the entire story because it foreshadows the $122.3 million dollar question that the IRS will soon decide.  

As part of the Green Bonds legislation, the IRS was tasked with ensuring that the federal taxpayer received its end of the bargain: a green building project.  In response, the IRS issued Internal Revenue Bulletin 2005-27 to provide “guidance on the requirements a project must meet in order to be eligible for designation as a qualified green building and sustainable design project.”  

What were the green building requirements to qualify for Green Bonds?

In order to receive $238 million in Green Bonds financing, the Destiny USA developer had to meet three primary requirements:

1.  The applicant had to “demonstrate, and provide written assurances” that the project would receive LEED certification.  

2.  The project had to include “a brownfield site as defined by section 101(39) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980.”  

3.  The project had to meet a number of “goals for conservation and technology innovation.” 

The conservation and technology goals relate to the following four items:

  • the “amount of electric consumption (in megawatt hours) reduced by the project,”
  • the “amount of sulfur dioxide daily emissions reduced by the project as compared to coal generation,”
  • the “amount of the gross installed capacity of the project’s solar photovoltaic capacity measured in megawatts,” and
  • the amount, “in megawatts, of the project’s fuel cell energy generation capacity, which includes the fuel cells’ generation of thermal and electrical energy used by the project.”

Because I tend to focus on regulations addressing LEED certification, lets take a closer look at the IRS’ requirements for LEED certification.  

“At least 75 percent of the square footage of commercial buildings that are part of the project is registered for United States Green Building Council’s LEED certification and is reasonably expected by the applicant (at the time of the designation) to receive such certification, based on all the facts and circumstances, including statements of the United States Green Building Council, opinions of independent experts in green building and sustainable design, and relevant experience of the project developer.

The developer was also required to submit LEED Letter Templates, documentation demonstrating the design and construction of a LEED-certified building, information regarding LEED Accredited Professionals working on the project and other supporting information.  

What is the penalty for not satisfying the green building and renewable energy requirements?  


According to the IRS Bulletin, the bond issuer was to maintain a reserve account equal to one percent of the net proceeds, which would be forfeited if the project failed to comply with the Green Bonds program’s requirements.  For the Destiny USA project, the bonds totaled $238 million so an account somewhere, so the IRS required that a reserve account contain $2.38 million plus interest.  If the IRS determines that the Destiny USA project failed to comply with the Green Bonds requirements, then “amounts in the reserve account, including all interest, will be paid to the United States Treasury.”

But Why is this Coming to a Head Now for the Destiny USA Project?  

The IRS Bulletin also requires the bond issuer to submit reports to the IRS on the qualifying projects 48 months after Green Bonds are issued.  The reports must specify whether the project has complied or will comply with the Green Bonds requirements.  

Since the Green Bonds were issued for the Destiny USA project late in February 2007, the bonds issuer -- the Syracuse Industrial Development Agency -- must submit its report not later than the end of February 2011.  That was yesterday.   

The IRS is not messing around when it comes to these reports as the Bonds issuer must include the following certification language in the report:  

“Under penalties of perjury, I declare that I have examined this document and, to the best of my knowledge and belief, the document contains all the relevant facts relating to the document, and such facts are true, correct, and complete.”

Next time, we will look at the past history and present state of the Destiny USA project.

The Destiny USA Debacle: How Green Building Sausage is Made

I am publishing a series of posts on the Destiny USA Debacle -- the federally sponsored Green Bonds project that has failed to incorporate promised green building features.  To read all of the posts, you can select the Destiny USA tag to review all of the published posts on this topic.  Or check back later in the week for an e-book that includes all of the posts, plus bonus coverage.  

The Destiny USA dispute hinges on whether a developer complied with green building and renewable energy promises he made in order to obtain federal Green Bonds funding.   But what is the Green Bonds program and how did it come about?

In 2004, the United States Congress passed the American Jobs Creation Act of 2004, which is essentially a huge tax bill.  Section 701 of the legislation included a seemingly-innocuous provision titled the “Brownfields Demonstration Program for Qualified Green Building and Sustainable Design Projects.”  

According to Investopedia, this Section led to the United States Treasury issuing $2 billion in Green Bonds to support green building construction:

Green bonds in the United States got a major boost from an amendment to the America Jobs Creation Act of 2004. The amendment is officially titled the Brownfields Demonstration Program for Qualified Green Building and Sustainable Design Projects, but for those who prefer to have a little oxygen left at the end of their sentences, this has been shortened to "Green Bonds". It was designed to provide funding - in the form of $2 billion worth of AAA-rated bonds issued by the United States Treasury - to finance environmentally friendly development. The objective is to reclaim contaminated industrial and commercial land (brown fields), and encourage energy conservation and the use of renewable energy sources.

The Syracuse Industrial Development Agency was the bond issuer and sold $238 million of these Green Bonds in late February 2007.  Investors -- corporations and individuals who purchased the bonds -- received two benefits:  interest paid over the lifetime of the bonds, and tax-free status on the interest paid.  Because of the tax-free interest, Investors were willing to accept lower interest rates on the bonds.  The proceeds from the sale of these tax-free bonds were then provided by the Agency to the developer of Destiny USA in the form of a tax-free loan.

The taxpayer is also an important player in this scenario.  By waiving the normal tax obligation, the taxpayer is essentially investing in the developer’s project as well.  In exchange, the taxpayer is supposed to receive a public benefit in the form of a green building development on a brownfield site.  Who represents the taxpayer in this scenario?  The word “tax” should have tipped you off -- the Internal Revenue Service.  

They IRS is probably the most important party in the entire Destiny USA dispute. 

Photo credit: mjar81

The Destiny USA Debacle: What is Destiny USA?

I am publishing a series of posts on the Destiny USA Debacle -- the federally-sponsored Green Bonds project that has failed to incorporate promised green building features.  To read all of the posts at once, you can select the Destiny USA tag.  

In this post, I planned to describe the proposed Destiny USA project and its many features.

I think you will prefer this video.  



Did that remind anyone of Jurassic Park?  

If you prefer a written explanation, this is how the New York Times described the Destiny USA project in 2005:

Robert Congel, a commercial real-estate developer who lives in upstate New York, has a plan to ''change the world.'' Convinced that it will ''produce more benefit for humanity than any one thing that private enterprise has ever done,'' he is raising $20 billion to make it happen. That's 12 times the yearly budget of the United Nations and more than 25 times Congel's own net worth. What Congel has in mind is an outsize and extremely unusual mega-mall. Destiny U.S.A., the retail-and-entertainment complex he is building in upstate New York, aspires to be not only the biggest man-made structure on the planet but also the most environmentally friendly. Equal parts Disney World, Las Vegas, Bell Laboratories and Mall of America -- with a splash of Walden Pond -- the ''retail city'' will include the usual shops and restaurants as well as an extensive research facility for testing advanced technologies and a 200-acre recreational biosphere complete with springlike temperatures and an artificial river for kayaking.

That is Destiny USA.

The Destiny USA Debacle: The Biggest Green Building Policy Story to Date

I have been working tirelessly to understand the intricacies of the Destiny USA dispute.  It is quite a mind-bender, which I hope to illuminate for you in the coming days.  But I am sure of one thing:

This is easily the most important green building policy story to date.  

  • The dispute centers around a much ballyhooed Green Bonds program created in 2004.  I am going to do my best to avoid the political issues involved with the Green Bonds program, but if you are interested in that side of the story, I suggest you review this Boston Globe article.  
  • In its simplest form, the Green Bonds program works because both investors and developers get substantial tax breaks to create green building projects that benefit the public.  For example, it is estimated that the Green Bonds program saved the Destiny USA project upwards of $120 million.  
  • Tax breaks come at the expense of the taxpayer.  In exchange, the public benefit comes in the form of an environmentally-friendly project -- in this case, Destiny USA made promises about LEED certification and renewable energy features that reportedly will not be included in the completed project.  

The IRS is faced with a difficult question -- did the Destiny USA project comply with the Green Bonds green building and renewable energy requirements?  If the IRS rules that the requirements were not met, then the project could be penalized millions, the tax exempt status of the bonds could be stripped, and widespread litigation will likely ensue.  If the IRS rules that the requirements were met, then the developer and investors will retain the tax benefits but the public will reportedly not receive the benefit of the promised green building and renewable energy systems.  

In order to tell the story of the Destiny USA Debacle, I have written nine blog posts to be published in the coming days:

  • What is Destiny USA? - a review of the Destiny USA project as originally proposed.
  • How Green Building Sausage is Made - a review of the Green Bonds program that was passed in 2004.
  • The USGBC’s Role in Destiny USA - a review of the USGBC’s participation in the Destiny USA project and the Green Bonds program.
  • Why the IRS is Key - a review of the Bulletin issued by the IRS that will be essential in deciding this dispute.
  • Destined for Trouble - a review of disputes and litigation that have arisen from the Destiny USA project.  
  • May it Please the IRS - a review of the letter prepared by the local bond issuer to the IRS arguing that the project complied with the Green Bonds requirements.  
  • LEEDigation on Steroids - what happens if the IRS rules against the Destiny USA developer and strips tax-exempt status?
  • How to Avoid LEEDigation Liability - some thoughts on how contractors and design professionals could get dragged into the Destiny USA dispute; and how to make sure your company avoids this type of scenario.  

If you do not want to wait for each blog post, then please check back on Monday, when I will be publishing a full e-book that contains all nine posts -- plus bonus coverage -- of the Destiny USA Debacle.

 

Unprecedented Green Building Dispute Could Cost Developer $122.3 million

Up until yesterday, the biggest green building dispute I had come across was Shaw Development v. Southern Builders.  That case involved $635,000 in damages because a project did not obtain the LEED certification necessary to qualify for state tax credits.  

That is chump change compared to the Destiny USA green building dispute that is simmering. Because the mega project allegedly failed to incorporate green building components it had promised  the federal government -- including LEED certification -- the developer may be penalized $2.3 million by the IRS.

I am going to be writing about this example of LEEDigation for some time.  This post will cover just the basics but I will be diving into the messy details throughout the week.  

In 2004, federal legislation was passed to create a Green Bond program.  Under the program, a few developers received tax-free financing for the construction of green building projects.  One of those projects was Destiny USA, which is a proposed 4.5 million square foot retail and entertainment complex in Syracuse, New York.  The Destiny USA project received $228 million in tax-free Green Bonds.  According to Syracuse.com, the tax-exempt status of the financing saved the developer $120 million.  In exchange, the developer of the project, Robert Congel made promises about green building features and LEED certification that would be incorporated into the project.  

But what happens if the developer does not satisfy his green building promises?  We will likely find out within the next year.  

According to an incredible article written by Rick Moriarty of the Syracuse Post-Standard, the project will not include many of the promised green building building components:

There is no 45-megawatt electricity generating plant running on “biofuel” made from soybean oil and recycled cooking grease. If there were, it would be the largest such plant in the nation and consume more than one-third of the total U.S. biodiesel supply.

Nor are there 290,000 square feet of solar panels on the mall’s roofs and other surfaces, enough to blanket six football fields.

The fuel cells that were to make 7 megawatts of electricity, five times more than the nation’s largest existing commercial fuel-cell installation? Nowhere to be seen.

Additionally, there is confusion as to whether the project has received its LEED certification, which was also promised.

The Destiny USA developers are facing a month-end deadline to certify to the IRS that the green building promises were met.  If the IRS determines the developer did not meet its promises, the project could lose its tax-exempt status -- which reportedly saved the developers $120 million -- and be slapped with a $2.3 million penalty.  

There is so much more to this story.  If you are interested, I would advise you to check back over the coming days as new posts will be frequent.  I will also be publishing a white paper describing all of the sordid details.

Gifford's LEED Lawsuit Takes New Shape

You remember the $100 million dollar lawsuit against the US Green Building Council, right?  

It’s back in the spotlight, and it has taken a new form through an amended complaint filed by multiple Plaintiffs. No longer is the Plaintiff asking for $100 million.  No longer is the Plaintiff asserting a class action lawsuit that would have represented essentially anyone that ever took a step into a LEED building.  

You can download a copy of Henry Gifford’s amended complaint (PDF), which was filed on February 7, 2011.  Here are the basics of the complaint:

  • The Plaintiffs are four design and construction professionals:  Henry Gifford, Elisa Larkin, Matthew Arnold and Andrew Ask.  
  • The Plaintiffs allege that the USGBC has falsely led consumers to believe that LEED buildings are more energy efficient.  The Plaintiffs claim that the USGBC’s own data proves that LEED buidings are actually not more energy efficient.  The Plaintiffs also assert that the USGBC never actually verifies that buildings are designed and constructed to save energy.  
  • To prove the USGBC’s alleged lack of verification, the Plaintiffs point to the Northland Pines High School LEED certification challenge.  You may recall that I covered this story extensively in 2010.  
  • The Plaintiffs do not assert how much they have lost due to the USGBC’s actions. 
I have always wondered how the Plaintiffs would argue that the USGBC’s alleged false advertising cost the Plaintiffs’ actual jobs and income.  You can see the foundation for the Plaintiffs’ argument in the complaint:  

“USGBC's false advertising causes consumers of building design and construction advice to utilize a LEED-certified professional instead of Plaintiffs because consumers mistakenly believe that LEED-certified professionals will design a LEED-certified building that is verified by a third-party to be more energy-efficient than the building that Plaintiffs would design. . . .”

What do you think of this argument? 

LEED Automation Means More Efficiency, Fewer Consultants

Back in November 2010, I received a press release that caught my attention:

“The U.S. Green Building Council (USGBC), developers of the LEED green building program today announced LEED Automation, a new program in collaboration with leading technology companies that is designed to streamline and create capacity for the LEED building certification process. LEED Automation enables LEED Online, the online tool projects use to submit documentation and certify LEED projects, to interact with third party technology platforms.”

Throughout the Greenbuild conference, I kept running into LEED automation. For example, I kept hearing people talking about the demonstration put on by LoraxPro. LoraxPro and other vendors are now providing software that automates the application process for LEED certification.

The automation of the LEED application process is an important development for two primary reasons.

Automation will drive down LEED costs

LEED automation very well may eliminate some of the main criticisms of LEED. The two complaints I hear most often about LEED certification are that it costs too much money and that its it’s an administrative burden to put together the application and documentation. These two complaints are interrelated—if you lessen the administrative burden then costs to certify go down because less time is spent collecting documents and data.

LEED automation will drive down the costs of certification by reducing the time spent on the application process. Just take a look at this LoraxPro video, and you will see how this software streamlines the LEED application process:

 It’s obvious to me why the USGBC has allowed LEED automation--software that simplifies and drives down the cost of LEED certification will increase the number of projects applying. And I anticipate that some of the company’s companies creating Building Information Modeling (BIM) software will incorporate LEED application steps into its their software, further streamlining the process.

Is there a negative consequence to LEED automation?

Automation will eliminate LEED consulting

Many of my friends in the green building industry are LEED consultants. Among other activities, these consultants put together the LEED documentation necessary to apply for LEED certification. This type of LEED consulting will soon be unnecessary

If LEED automation software streamlines the application process, then there will be less need for the services of LEED consultants. Additionally, as more developers, contractors and design professionals begin to use LEED automation software, LEED consultants will no longer be needed. The developers, contractors and design professionals will simply fold LEED administrative tasks into normal business practice; many have already done so. The remaining LEED consultants will fight for the scraps left over and will have to learn to use LEED software going forward.

What are the legal consequences of automation?

  • Will LEED software administrators be more likely to guarantee a level of certification?
  • Who owns the data going into the software? Will all parties agree to readily provide this data? Similar legal issues have arisen from Building Information Modeling (BIM).
  • As with any computer program, the output is only as reliable as the user who inputs the data. Could mistakes in the LEED application process increase if less experienced parties take over the LEED application process?

What do you think about LEED automation?

Sordid Green Bulding Litigation Arises in Minnesota

This is as confusing and sordid as any green building dispute I have seen.  Consider yourself warned. 

Over the holidays, Michael Anschel informed me that the the Builders Association of the Twin Cities (BATC) had sued Minnesota GreenStar and filed a restraining order against using a green building standard. 

Despite that simple statement, there is a lot more to this story.  Here is the best summary I can come up with after reviewing the lawsuit filed by the BATC and a blog post by Anschel on the subject. 

The BATC worked with other associations to create a green building standard, called the Green Homebuilding Guidelines.  BATC and the other entities then created a new entity, Minnesota GreenStar, to run the green building standard (much like the Green Building Certification Institute runs LEED).  At some point, BATC became disenchanted with either Minnesota GreenStar and/or the Green Homebuilding Guidelines, and decided to file a lawsuit to essentially take over administration of the Guidelines.  If you believe the complaint, the reason for BATC's disenchantment was Minnesota GreenStar's failure to repay a loan and GreenStar's intent to license the green building standard to other states.  If you believe Anschel's post, BATC's reasons are more sinister and have to do with weakening the Green Homebuilding Guidelines.

Lets start with the lawsuit itself. 

On December 9, 2010, the BATC filed a restraining order and lawsuit against Minnesota GreenStar.  BATC claims that in 2006, it developed the Green Homebuilding Guidelines and further asserts it owns the intellectual property rights to the Guidelines.  BATC also points out it that it contributed $50,000 to develop the Guidelines. 

In 2007, BATC, along with two other entities, formed Minnesota GreenStar, which began using the Green Homebuilding Guidelines.  At some point in 2008, GreenStar filed registered copyrights for the Green Homebuilding Guidelines, which would give GreenStar intellectual property rights to the Guidelines. 

This is where events get a bit confusing.  BATC alleges that in 2010, it provided an additional loan to GreenStar.  Despite this additional loan, BATC claims that GreenStar ran into financial trouble:

"On September 15, 2010, GreenStar conducted a meeting of its Board of Directors and disseminated its Business Plan . . . in which GreenStar relied on continued sponsorships, a one-year deferment on its Promissory Note obligations to BATC, and significant additional funding from BATC. . . . GreenStar also indicated its intent to license the Green Homebuilding Guidelines developed and owned by BATC to other states to raise revenue for GreenStar."

BATC goes on to ask the Court for four things: 

1.  Judgment of $50,000 for an alleged breach of the loan;
2.  Judgment declaring that BATC owns the intellectual property rights to GreenStar and GreenStar is restricted from using or licensing the Guidelines;
3.  Temporary and permanent injunction against GreenStar from using the Guidelines; and
4.  Attorneys fees. 

Taken at its face, the complaint suggests that BATC is concerned about the prospect of licensing the Green Homebuilding Guidelines to other states.  But why would a builders association be concerned about this? 

According to Anschel, BATC's motives are more complicated.  In a blog post at Construction Law Musings, Anschel explains that BATC actually intends to develop a new green building certification program that allows for self certification.  Anschel believes BATC's move is a step backwards for green building in Minnesota.  If BATC intends to create a new green building standard in Minnesota, then it certainly makes sense why it would want to take over and limit Minnesota GreenStar and the existing Green Homebuilding Guidelines. 

What do you think?

Photo credit: Jvstin

Are Challenges to Green Building Codes on the Rise?

Last night I had dinner with a long-time reader of Green Building Law Update.  I was frank with him, and I will be frank with you.  I will be doing two things this year with the blog: 

1.  I am going to stop talking about LEEDigation as much.
2.  I am going to talk more about the green building codes, and the challenges to those codes that are occurring throughout the country.

A trend seems to be developing across the country in the green building world.  Traditional builders and manufacturers are fighting against green building codes and programs.  You can expect an increase in these types of challenges in 2011. 

One of the first reported legal challenges to a green building code occurred in New Mexico with the case Air Conditioning, Heating, and Refrigeration Institute (ACHRI) v. City of Albuquerque.  The case focused on the Albuquerque Energy Conservation Code passed by the city on September 17, 2007.  The goal of the code essentially was to create greater energy efficiency in buildings and products.  As often happens with new regulations, numerous parties were unhappy with the Code.  Three trade associations representing HVAC product manufacturers, distributors and installers challenged the Code, and the case was ultimately decided on September 30, 2010 by Judge Martha Vazquez of the U.S. District Court for the District of New Mexico. 

While the legal challenge focused on many portions of the Code, I am focusing on Volume I, which included requirements for commercial buildings and multi-family buildings. 

In order to comply with Volume I of the code, a building had to satisfy one of three paths:

  1. The building must achieve LEED certification;
  2. The proposed building must be 30 percent more energy efficient than a baseline building; or
  3. The Heating, Ventilation, and Air Conditioning (HVAC) system and equipment must comply with minimum energy efficiency standards.

There is a key difference between the first two compliance paths and the last.  The first two paths can be described as performance-based because the building must perform in a particular manner.  The last path is a prescriptive compliance path, which means it focuses on the products that go into a building. 

Judge Vazquez relied on the legal theory of federal preemption to strike down the code's prescriptive compliance path:

"The Court concludes that the prescriptive provisions of Volume I requiring the use of heating, ventilation, or air conditioning products or water heaters with energy efficiency standards more stringent than federal standards are regulations that concern the energy efficiency of covered products and, therefore, are preempted as a matter of law."

Judge Vazquez pointed to the National Appliance Energy Conservation Act, which expressly preempted product energy efficiency standards: 

"A standard prescribed or established under section 6313(a) of this title shall, beginning on the effective date of such standard, supersede any State or local regulation concerning the energy efficiency or energy use of a product for which a standard is prescribed or established pursuant to such section."

Judge Vazquez went on to uphold performance path one and two because the plaintiffs presented a "cursory argument" and "very few material facts" in support. 

The question remains whether a court could find federal preemption of a LEED-based code if properly argued by a plaintiff. 

Best in Green Building Law 2010, Part III

It is the week between Christmas and New Year's, which can only mean one thing:  bloggers are getting lazy and doing "best of" posts. 

There was one story I wrote this year that was far and away more interesting to me than any other:  the Northland Pines High School LEED certification challenge.  I found the story to be so fascinating that, as one blogger put it, I could not shut up about it.  By the time I was done, I had written nine blog posts on the story that spanned from May 5 to June 21.  By the end of the series, I was warning people how many posts were left.  I simply could not help myself; the posts wrote themselves.  You can read all nine posts in one easily downloadable PDF:   "LEED Certification Challenges and the Northland Pines Incident."

Instead of focusing on the actual conflict, I am going to focus on the aftermath.  I, along with many other writers, pointed out the inherent problems with the LEED certification challenge policy.  The US Green Building Council moved quickly to revise the challenge policy.  Here's the story:

On June 21, 2010, I wrote a blog post titled "Green Building Challenge Policy Requires Fixes."  My post detailed problems with the LEED certification challenge policy, as published in the LEED Certification Policy Manual.  You may recall that I wrote on, and on, and on about the challenge policy, resulting in a grand total of nine posts on the subject.  I don't want you to have to go back and read all nine posts so I have combined them into one white paper titled "LEED Certification and the Northland Pines Incident" (pdf) that you can download now. 

The biggest problem with the previous LEED challenge policy was that literally anyone could challenge any LEED project at any time based on any LEED point

On September 17, 2010, the Green Building Certification Institute (GBCI) published a revised LEED Certification Policy Manual (pdf)(Ed. Note: this link is now broken after further revisions to the policy manual), as discovered by my good friend Tim Hughes. The Policy Manual significantly revised the challenge policy, which now reads in part:

9.3 Basis for an Initiation of a Certification Challenge: GBCI reserves the right to institute investigations and review documentation for any reason or for no reason at all. In addition, GBCI encourages third parties who wish to make a complaint, or bring to light information affecting the grant of LEED certification to do so in the following manner. Parties seeking to submit a complaint or report information affecting the grant of LEED certification must have specific personal knowledge of an event or condition that would prevent a project from satisfying a particular credit, prerequisite, or MPR. Complainants must indicate the credit, prerequisite, or MPR that is affected. Further, such persons must indicate to the fullest extent possible, in the form of a written statement, details of such event or condition including the following: i) the alleged offending conduct or condition; ii) the persons involved; iii) other persons who may have knowledge of the facts and circumstances concerning the allegation, including contact information for such persons; and iv) the identity of the person presenting the complaint including such person’s full name, address, email, and telephone number. Complaints must be submitted to GBCI within two (2) years of the award of LEED certification for a project. GBCI cannot guarantee anonymity to persons submitting complaints. If GBCI determines that the complaint is frivolous or irrelevant to the credits, prerequisites and MPRs required for LEED certification, no further action will be taken.

Under this new policy anyone with specific personal knowledge can challenge any LEED project within two years of LEED certification based on any LEED point.

It took the USGBC less than three months to revise the LEED Certification Policy Manual and challenge process.  That is incredible and the USGBC should be commended for quickly moving on this issue.

Best in Green Buiding Law 2010, Part II

It is the week between Christmas and New Year's, which can only mean one thing:  bloggers are getting lazy and doing "best of" posts. 

At this year's Greenbuild, I had the pleasure of meeting Tristan Roberts for the first time.  I have been reading Tristan's content at BuildingGreen.com for some time.  I am highlighting one particular article he did regarding the reaction to Henry Gifford's class action lawsuit against the US Green Building Council.  Tristan put words to a thought I had been having for some time:  the reaction to the lawsuit was swift and fierce.  Below is Tristan's description but I would also suggest you click through to his full article to read the fascinating summary of reactions that he put together. 

In the years that I've been reporting for Environmental Building News, I can't think of another news story that has drawn as much immediate and widespread interest as our recent coverage of the filing of a $100 million class-action suit against USGBC for allegedly defrauding the building industry based on misrepresentations of the performance of LEED-certified buildings. I interviewed several of the parties involved, including the lead plaintiff, Henry Gifford.

The merits of the lawsuit itself aside (and it's got problems, as noted in the EBN article), I have found it particularly striking how many people have used the news as a flashpoint for complaining about LEED and USGBC. Following are some of the more reasoned opinions from around the Web that are generally anti-USGBC and anti-LEED:

What do LEED lawsuit reactions say about us?

Why I Talk About LEEDigation

I recently attended the Green Tie event hosted by the US Green Building Council National Capitol Region.  As I was milling about, I saw one of my green building friends that I had met nearly two years ago at the very first public speech I gave on LEED certification, risks and litigation.  Back in 2008, I had not yet coined the term LEEDigation, but I was talking about drafting contracts to assign LEED responsibilities and the Shaw Development v. Southern Builders case. 

As I started talking with my friend about his latest LEED project, I asked about his contract.  He assured me that he refused to let his company - a contractor on a design-bid-build project - guarantee LEED certification to the owner.

That's when it hit me:  I, along with my fellow green building attorneys, are preventing LEEDigation by discussing the inherent risks and liabilities. 

Why am I bringing this up?  A recent comment on my blog referred to one of my posts as a "LEEDigation scare tactic."  I don't describe "LEEDigation" in order to scare away owners and developers from seeking LEED certification.  The only thing I am trying to scare my readers into doing is drafting contracts that address the risks and liabilities inherent in LEED certification.  By discussing the risks and importance of contracts in the LEED certification process, attorneys are contributing to the success of LEED projects.

Someone, please, explain to me how "LEEDigation" is a scare tactic. 

Related link:  Why You Won't Find "LEEDigation" Under Your Green Building Christmas Tree

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? 

What Happens if Your RFP Does Not Include LEED?

If a Request for Proposal (RFP) is the key to a successful LEED project, what happens when an RFP does not properly address LEED requirements? 

Last week, I was skimming my AGC Smartbrief (a great resource for construction news), when my LEEDigation radar went off:

"Texas military construction project goes 25% over budget"

While the story was not about litigation itself, the Texas military construction project is instructive as to the importance of the RFP process to manage LEED costs.   

The MySanAntonio.com article explains that the Army Corps of Engineers project ran substantially over budget

With less than a year left until its scheduled completion, the cost for the renovations and new construction at Brooke Army Medical Center has jumped more than 25 percent.

Randy Holman, program manager for the Army Corps of Engineers and spokesman for the Joint Program Management Office, said the budget for the BAMC renovations originally totaled $630 million but has been increased to $802 million.

You know what is coming next.  Among other reasons for the budget overrun, LEED was blamed as a culprit:

Holman added that many design changes were made for a Leadership in Energy and Environmental Design silver certification, which is a sustainable "green" building certification that the project hopes to achieve. Those changes included installing a glass wall instead of the outer brick facade that was planned.

There is no telling how much of the 25 budget overrun can be attributed to the LEED changes.  But the Brooke Army Medical Center is an extreme example of the importance of including green building and certification requirements in the initial RFP.

By the way, what do you think would have happened if the Corps of Engineers refused to pay the cost overruns associated with LEED certification?  

Photo credit: tychay

Are Green Building RFPs More Important Than Contracts?

Last week, Bob Kobet and I took our shiny new green building presentation for a test ride.  Entitled "LEED Orientation Lite," we focused on cost and risk management during the design and construction of a LEED project.  While preparing our presentation, Bob kept driving home one singular point to me:  the Request for Proposal (RFP) process is key to managing a successful LEED project. 

The RFP process? 

As an attorney, I tend to think the contract is the key element to a successful construction project.  Upon further review, I am convinced Bob is on to something.  To successfully manage a LEED project, the owner needs to ensure a clear RFP is drafted.  A clear RFP addresses many of the problems that lead to LEEDigation:

1.  If an owner drafts a clear RFP, the owner and contractor should have a clear understanding of the owner's green building expectations.  Reasonable expectations understood by all the parties makes it more likely that a project will ultimately be successful. 

2.  If an owner drafts a clear RFP, the owner will get more responsive proposals and the owner can more effectively evaluate the merits of each proposal. 

3.  If an owner drafts a clear RFP, the parties can more effectively draft and negotiate a contract outlining the expectations as first discussed in the RFP. 

After our presentation last week, numerous owners confirmed that the RFP process was key to a successful LEED project and that many owners can do a better job on this end.  Bob and I are looking forward to working with owners to improve green building RFPs.  I just might be preventing some of the LEEDigation I have so long predicted. 

How do you ensure a successful green building RFP?

Photo credit:  jaygoldman

What's the Next Big Thing In Green Building Law?

On Thursday, I highlighted an ENR article that focused on LEEDigaiton-related "chatter" at Greenbuild.  Some of that chatter was most likely the result of the first Greenbuild Legal Forum.  Another recent article highlighted additional green building law trends that were highlighted at the Forum. 

Part Two:  Treehugger

In attendance at the Greenbuild Legal Forum was one of my favorite bloggers, Lloyd Alter.  Lloyd is the mastermind behind Treehugger, where he writes fascinating articles about the development of green building and LEED.  I was pleasantly surprised when Lloyd approached approached co-panelists Shari Shapiro and Stephen Del Percio and me about predicting the future of green building law for one of his articles. 

Our predictions are available in the appropriately-titled article "Three Green Building Lawyer Bloggers Predict The Next Big Thing".  If you have read my posts the last few months, you can probably guess what I wrote about.  I believe we will see more LEEDigation in the coming years due to financial and regulatory incentives for building to LEED certification levels. 

But check out the other predictions from Stephen and Shari.  Of particular interest to me is Stephen's prediction of more challenges to LEED regulations:

For all of the discussion about the legal implications of legislating green, there have been surprisingly few challenges from the private sector. However, as governments across the country continue to face budget shortfalls and other financial pressures, private actors will more closely scrutinize - and oppose - existing state- and local-level green building legislation. The AHRI and BIAW litigations in New Mexico and Washington, respectively, could be just the beginning for a host of challenges on a number of grounds in addition to preemption.

Take a look at the predictions and then come back and let me know what you think. 

Are You Noticing an Increase in LEEDigation Chatter?

Without a doubt, the green building industry is paying more attention to green building law.  Two recent articles point to a growing consensus that green building litigation -- LEEDigation -- is on the horizon. 

Part One:  ENR

Last Monday, I was rushing around trying to pack for my Thanksgiving trip to Kansas City.  When it comes to packing and getting to the airport, I am a bit of a procrastinator.  I noticed on my phone that I had missed a call from a strange number. 

Turns out, it was the Engineering News Record (ENR) and they wanted to talk about LEEDigation. 

In that moment, I completely forgot about my flight and found myself engrossed in a conversation that resulted in the following article:  "Green Building Thrives in Shaky Economy."  The article is fascinating for a number of reasons.  First, the paragraph introducing green building legal issues hammers home the point of a growing consensus about green building risks:

"Much chatter heard around the show [Greenbuild] centered on the prospect of lawsuits as green-building standards work their way deeper into building specifications and codes."

I would agree with this chatter.  Guarantees of LEED certification are starting to become more common in green building contracts.  And with guarantees, lawsuits are likely to follow.  Here is what I had to say about green building legal issues in the article:

Cheatham, who is credited for coining the term “LEEDigation” in his blog, “Green Building Law Update,” has predicted a rise in these lawsuits. He says he will be watching out for them over the next two years for three reasons: First, owners rushed to get projects registered prior to a 2009 LEED update that required them to report energy data to USGBC. Second, more owners are now expecting LEED to help generate revenue. Third, projects mired in financial troubles may decide not to pursue certification even though it was promised.

“A lot of those projects should be coming up for certification soon,” Cheatham explains, adding that the economy’s shaky condition is “setting the stage for a project not obtaining certification becoming the subject of litigation.”

Do you agree or disagree?  Are you hearing chatter centered around LEED-related lawsuits? 

How Do You Measure the Costs and Risks of Each LEED Point?

I hope everyone had a great Thanksgiving.  I wanted to provide information about another FREE upcoming webinar at which I'll be presenting.  I am particularly excited about this webinar because my colleague Bob Kobet and I will be unveiling the first stage of what I believe is a dynamic new way to view green building costs and risks.

As you may recall, Bob is a LEED faculty member, and after I launched my own company, he contacted me about collaborating on a new project.  We have systematically evaluated each LEED point to determine the associated cost, value and risk.  Through this webinar, Bob and I will reveal the foundations of our new LEED cost and risk management program.  Keep in mind, there is not enough time to review each LEED point in a one-hour webinar, so please contact me if you'd like to work together on a more comprehensive program designed for your needs.  

I hope you can join us.

LEED Orientation: Managing the Costs and Risks of Green Buildings

Security and Sustainability Forum
December 1, 2010

Sign up here

Security and Sustainability Forum
December 1, 2010
2:15 - 3:45 PM Eastern

Washington, DC (November 3, 2010) – What is LEED Silver? Why do I want LEED silver? What happens if I don’t get LEED silver? Many owners, and even design professionals and contractors, undertake green building projects without a complete understanding of what it means to seek LEED certification. More importantly, parties often don’t manage the costs, value and risks inherent in the certification process.

In this hour-long presentation, Robert Kobet, LEED Faculty, and Christopher W. Cheatham, LEED AP, will discuss the basics of LEED certification and explain how to categorize and manage the costs, value and risks that arise on a project seeking certification. As the green building industry becomes more focused on the bottom line, parties will have to truly understand LEED certification and how to manage the costs and risks involved in the process or suffer the consequences.

Key Learning Objectives

  • What is LEED?
  • How do you measure the cost and value of LEED certification?
  • What are the risks inherent in LEED certification?
  • How can you manage the costs and risks of LEED certification while maximizing value?

Featured Speakers

Robert Kobet, LEED Faculty and architect, and Christopher W. Cheatham, LEED AP and attorney, have formed the Kobet Cheatham Group to consult to clients involved in the LEED certification process and green building projects.

The Kobet Cheatham Group offers green building consulting to owners, architects, engineers and contractors involved in LEED projects. Through the groundbreaking “LEED Orientation” program, Kobet and Cheatham educate participants about LEED certification while providing insights on how to manage the costs and risks inherent in the process.

Christopher W. Cheatham is an attorney and LEED AP. He is the principal of The Law Office of Christopher W. Cheatham LLP, a full service construction law firm. Chris assists owners, green building contractors and renewable energy companies with contracts, disputes and green building certification. Chris also publishes a widely-acclaimed legal blog, Green Building Law Update (www.greenbuildinglawupdate.com). He was recently one of nine attorneys chosen nationwide to speak at the inaugural US Green Building Council Greenbuild Legal Forum.

Robert J. Kobet, AIA, LEED Faculty, is President and CEO of The Kobet Collaborative, a multifaceted architectural consulting practice specializing in sustainable design and development, high performance architecture, and environmental education. Mr. Kobet’s work includes individual high performance green buildings and sustainable community work in twelve countries on five continents. Mr. Kobet is also one of the original LEED Faculty members and has spent the last eleven years teaching a variety of LEED Workshops to diverse government, corporate, educational and private audiences around the world. He Chairs the USGBC LEED for Schools Committee and is co-author of LEED for General Contractors and Construction Managers.

Follow-Up
For additional information, please contact Robert Kobet at bob@kc-grp.com or Christopher Cheatham at chris@kc-grp.com.

Sign up here

Reading the Green Building Tea Leaves

I am trying to make sense out of a number of different events that will be shaping the design, construction and green building industries for the foreseeable future.  Maybe you can help me make sense out of it all.  Here is what I am seeing:

Something is going on with LEED

The number of LEED registrations appears to be down substantially this year.  To learn more, I would suggest you register for this upcoming webinar hosted by Greener Buildings and Rob Watson.  The decline in registrations is not surprising given the decline in the design and construction of new commercial buildings. 

What is surprising is the anger that I am hearing by those frustrated with the LEED rating system.  Many of these frustrations are now being publicly expressed in reaction to the Henry Gifford lawsuit against the US Green Building CouncilEnvironmental Building News ran a fascinating article on the reaction to the Gifford lawsuit:  "In the years that I've been reporting for Environmental Building News, I can't think of another news story that has drawn as much immediate and widespread interest."  The article goes on to survey the reactions to the Gifford lawsuit.  I have always feared a green backlash would occur, but I never expected it so soon and so abruptly.  I wonder if the decline in registrations and certifications is tied to the green building community's frustration with LEED? 

Update:  Also, check out this article written by Lloyd Alter regarding LEED bashing.  

We need a solution for our infrastructure needs

And speaking of anger, the Tuesday elections will most definitely affect the future of the construction industry.  The shutdown of the New York-New Jersey tunnel by Gov. Chris Christie is a perfect example of what I believe will be a reining in of public works spending.  The Republicans resoundingly won 60 seats in the House based in large part on a message of fiscal austerity; fiscal austerity means less federal investment in large construction projects.  And yet, our infrastructure needs significant rehabilitation.  When I mention our infrastructure, I like to include the inefficient buildings that could be retrofitted.  Next week, at the Construction User's Roundtable convention, I will be speaking about the country's aging infrastructure, the current political climate and one potential solution:  public-private partnerships (PPPs).  As federal and state green building projects are cut in the name of fiscal austerity, hopefully PPPs will provide an answer to a very complicated issue. 

I am in the process of creating my business strategy for 2011.  I see American Recovery and Reinvestment Act projects dropping off, federal and state construction projects being abandoned, and public-private partnerships being touted as the savior for our infrastructure and green building needs.  The next two years will also be very important for the future of green buildings and the LEED rating system.  How quickly the Gifford lawsuit is resolved will be important, but just as important is what the US Green Building Council does to address the anger underyling the lawsuit. 

What do you think?  How do you interpret everything that is going on? 

Photo credit:  J.VillaretePhoto

What's the Next Big Challenge in Green Building Law?

Two years ago, I attended my first Greenbuild, the annual conference and exhibition hosted by the US Green Building Council, in Boston, Massachusetts.  Frankly, it was a bit uncomfortable and I felt like an outsider.  By my count, only four attorneys were present among the thousands of attendees.  But the discussion of green building legal issues has come a long way in two short years. 

I am honored to have been chosen as one of nine attorneys to participate in the inaugural Greenbuild Legal ForumOn November 18, 2010, from 8:30 to 11:00 am, three panels of attorneys will discuss the legal issues facing the green building industry.  I will be on a panel with my esteemed colleagues, Shari Shapiro and Stephen Del Percio.  We have been tasked to answer the following question:

”What’s the next big challenge in green building law?”

I will be preparing my materials for the event soon so let me ask you: 

What is the next big challenge in green building law? 

For more information about the Greenbuild Legal Forum, please visit this Greenbuild website

Photo credit:  jikatu

Will the Gifford v. USGBC Class Action Lawsuit Be Certified?

I knew there was a reason I saved my law school text books.  

When I first heard of the class action lawsuit filed by Henry Gifford against the USGBC, my initial thought was "how in the world will he get a class certified?"  The initial hurdle for any class action lawsuit is to get one or more classes certified.  When a plaintiff, in this case Gifford, files a class action lawsuit, he is essentially asserting that there are a number of additional plaintiffs with similar complaints that should be included in the lawsuit and that he should be able to represent the additional plaintiffs. 

The plaintiffs goal is to convince the judge that a class or classes of people should be certified in the lawsuit.  Once certified, a class action lawsuit is much scarier for the defendant because financial liability scenarios go up drastically.  

Gifford is attempting to certify four separate classes:

1. All persons who paid for LEED certification in reliance on alleged deceptive marketing related to energy performance in LEED buildings.  

2. "All persons who design energy-efficient buildings and whose livelihoods are injured by USGBC's monopolization of the market through fraudulent and intentionally misleading representations in the marketing and promotion of the LEED product line. . ."

3.  All taxpayers whose city and state tax dollars are spent on the costs of LEED certification in publicly-commissioned buildings.

4.  Trades injured by USGBC's alleged deceptive trade practices because the trades lose money and time in having to comply with LEED certification even though the buildings are allegedly not saving energy.

Thankfully, I saved my Pleading and Procedure text book, which illuminates the four requirements of class certification.  I am by no means a class action lawyer but we can have fun speculating together as to whether any of Gifford's classes can be certified.  Here are the four requirements of class certification:  

Numerosity

"Rule 23(a)(1) requires that the class be so numerous that joinder of all members as individual named parties be 'impracticable.'"

Commonality

"Rule 23(a)(2) requires that there be questions of law or fact common to the class."

Typicality

"Rule 23(a)(3) requires that the claims or defenses of the named ('representative') party or parties be typical of those of the class as a whole."

Fair and adequate protection of the interests of the class

"Rule 23(a)(4) requires that the named party or parties provide fair and adequate protection of the interests of the class as a whole." 

Now its time for a pop quiz.  For this pop quiz, we are going to focus on Gifford's second proposed class:  "All persons who design energy-efficient buildings and whose livelihoods are injured by USGBC's monopolization of the market through fraudulent and intentionally misleading representations in the marketing and promotion of the LEED product line. . ."

1.  Do you think Gifford's class is numerous and all parties can not be included as regular plaintiffs?

2.  Are there questions of law or fact that are common to Gifford's class? 

3.  Are Gifford's claims typical of the class as a whole?

4.  Will Gifford provide fair and adequate protection for the interests of the class? 

Photo credit: Doctr

Gifford Files Class Action Lawsuit Against USGBC

Last Wednesday, I woke up bleary eyed to catch a flight to New Orleans for the Green Legal Matters conference.  Despite the fact that I was running late, I opened up my RSS feed and was suddenly startled wide awake when I read the following headline:

"Breaking: Henry Gifford Leads Class Action Lawsuit Against USGBC in Southern District of New York"

No longer concerned about the time, I found myself reading through the twenty-three page complaint, which makes numerous allegations against the USGBC and sets the table for a large class action lawsuit.  I can tell you that the complaint was one of the hot topics at the Green Legal Matters conference in New Orleans.  Today, I will discuss the basics of the complaint and on Wednesday I will discuss the initial hurdle of class certification.  Frankly, I am not sure the lawsuit gets beyond the certification level.  

You may be wondering what is the motivation of the plaintiff, Henry Gifford, to file this lawsuit?  The answer appears on page two:

"L.E.E.D.-accredited professionals are often, and increasingly, people with 'no experience whatsoever.' When L.E.E.D.-accredited professionals design and build buildings instead of skilled professionals, such as the Plaintiffs, with years of experience making safe, comfortable, and energy-efficient environments, the marketplace, consumers, and the environment often suffer." 

LEED accredited professionals can't be skilled professionals?  I have a feeling some readers will take umbrage at that statement.  

Gifford then alleges two instances of fraudulent misrepresentation by the USGBC: (1) the New Building Institute study commissioned by the USGBC in 2008 allegedly included skewed data; and (2) the USGBC allegedly mislead the market by claiming LEED certification is third-party verified.  Based on these allegations, the complaint then lists the following causes of action: monopolization through fraud, unfair competition, deceptive trade practices, false advertising, wire fraud, and unjust enrichment. 

And what does Gifford ask for as a result of these alleged transgressions?  $100,000,000. 

What's your initial take on the complaint?

Breaking: USGBC Moves Quickly To Revise Challenge Policy

The law moves at glacial speeds.  The USGBC does not. 

On June 21, 2010, I wrote a blog post titled "Green Building Challenge Policy Requires Fixes."  My post detailed problems with the LEED certification challenge policy, as published in the LEED Certification Policy Manual.  You may recall that I wrote on, and on, and on about the challenge policy, resulting in a grand total of nine posts on the subject.  I don't want you to have to go back and read all nine posts so I have combined them into one white paper titled "LEED Certification Challenges and the Northland Pines High School Incident" (pdf) that you can download now. 

The biggest problem with the previous LEED challenge policy was that literally anyone could challenge any LEED project at any time based on any LEED point

On September 17, 2010, the Green Building Certification Institute (GBCI) published a revised LEED Certification Policy Manual (pdf), as discovered by my good friend Tim Hughes.  The Policy Manual significantly revised the challenge policy, which now reads in part: 

9.3 Basis for an Initiation of a Certification Challenge: GBCI reserves the right to institute investigations and review documentation for any reason or for no reason at all. In addition, GBCI encourages third parties who wish to make a complaint, or bring to light information affecting the grant of LEED certification to do so in the following manner. Parties seeking to submit a complaint or report information affecting the grant of LEED certification must have specific personal knowledge of an event or condition that would prevent a project from satisfying a particular credit, prerequisite, or MPR. Complainants must indicate the credit, prerequisite, or MPR that is affected. Further, such persons must indicate to the fullest extent possible, in the form of a written statement, details of such event or condition including the following: i) the alleged offending conduct or condition; ii) the persons involved; iii) other persons who may have knowledge of the facts and circumstances concerning the allegation, including contact information for such persons; and iv) the identity of the person presenting the complaint including such person’s full name, address, email, and telephone number. Complaints must be submitted to GBCI within two (2) years of the award of LEED certification for a project. GBCI cannot guarantee anonymity to persons submitting complaints. If GBCI determines that the complaint is frivolous or irrelevant to the credits, prerequisites and MPRs required for LEED certification, no further action will be taken.

Under this new policy anyone with specific personal knowledge can challenge any LEED project within two years of LEED certification based on any LEED point

It took the USGBC less than three months to revise the LEED Certification Policy Manual and challenge process.  That is incredible and the USGBC should be commended for quickly moving on this issue. 

Download a copy of the white paper "LEED Certification Challenges and the Northland Pines High School Incident."

LEEDigation is About People

"LEED is about people."  

Bob Kobet made this insightful comment on October 1, 2010 at an AIA of Virginia panel.  The comment immediately stuck in my brain, and I soon found myself jotting down the following:

"LEEDigation is about people."  

LEEDigation is not about a building.  LEEDigation is about the people that built the building.  LEEDigation is about an owner's or tenant's unsatisfied expectations and I have the perfect article to demonstrate this point:

The greening of the Olympic Village has resulted in flooding toilets and leaky entranceways, says one disgruntled tenant.  "I have had nothing but nightmare problems, including a flood," says Lee, 56, a renter who asked her last name not be used.  "This is not acceptable in a brand-new building. I came here in good faith. They haven't stepped up to the plate," says Lee, who has been living at the village since early August.

The building in question is located in Vancouver's Olympic Village.  Normally, you would not expect the LEED rating system to be blamed for problems with the HVAC, irrigation and sewage systems.  But LEEDigation is about a tenant's expectations of its LEED building:

More than 1,000 condo units at the Olympic Village were built with some of the latest in LEED -- Leadership in Energy and Environmental Design -- technology. . . . Lee says the expensive, high-end equipment is adding another layer to the challenges facing the development.  She says pumps for the sewage system, which recycle grey water, have broken down several times, and may be the cause of her toilet overflowing and her bath becoming backed up with dirty water

...

She says the heating and cooling systems don't work properly, leaving the apartment feeling like a furnace on hot days.  According to LEED practices, the pipes are placed in the ceiling, but they are bare. There are no buffers to dampen the noise.  "It's humming all the time with the sound of running water. I can't sleep," Lee says.

There is no such thing as "LEED technology" or "LEED practices".  LEED does not certify technologies; the LEED rating system applies to buildings.  There is no LEED prerequisite that requires exposed HVAC pipes.  That was the decision of the developer and architect.  Surely, the developer would clear up these misnomers about the LEED rating system?

Millenium manager Kerry Shular admits there have been startup problems.

"We are a new building. There are growing pains," she says. "A lot of the LEED equipment is brand new. Things need to be tweaked. There are probably still things that need to be addressed."

LEEDigation is about people and a person's unsatisfied expectations.  While it's easy to roll your eyes at expectations that are based on misconceptions about LEED, it is important to ask yourself whether your owners, developers or tenants may have similar misconceptions that may result in disputes and litigation.  A little education can go a long way to preventing LEEDigation.

Photo credit: Pieter Musterd

USGBC CEO Warns of LEED Decertification

I told you that I would be thinking about green building on my recent vacation.  As luck would have it, one of the most important green building stories in the last year came out while I was away.  

It seems that the mainstream media publishes one article every year critiquing the United States Green Building Council (USGBC) and the Leadership in Energy and Environmental (LEED) rating system.   On September 22, NPR published an article titled "Critics Say LEED Program Doesn't Fulfill Promises," and included critiques from the preeminent LEED critic, Henry Gifford.

"LEED certification has never depended on actual energy use, and it's not going to," he says. "You can use as much energy as you want and report it and keep your plaque."

Gifford says LEED should have teeth. If the building doesn't perform as predicted, yank the certification.

In response, the USGBC brought out the big gun, CEO Rick Fedrizzi.  And Fedrizzi did not hold back, proclaiming that LEED decertification is all but certain in future rating systems:

Last year, the USGBC unveiled LEED version three...  Owners of all new LEED buildings must now tell the USGBC how their buildings are performing for at least five years as part of the "existing buildings program."

Fedrizzi predicts that data will be used to enforce performance in the future.

"Once a LEED plaque is assigned to a building, and there is proof that the building is no longer performing the way that it should, there's a very good chance that that information will then result in the ability for USGBC to remove the certification from the building — most likely on our website," he says.

Not by removing the plaque. Fedrizzi is walking a tightrope between persuading builders to go green and alienating customers who don't want the performance of their multimillion-dollar projects scrutinized by the public.

We know that there are buildings obtaining LEED certification that are not performing as anticipated.  In fact, one study found that 25 percent (pdf) of LEED buildings don't perform as anticipated.  When the USGBC implements its decertification process -- which should occur in the 2012 rating system -- there will be plenty of potential victims for decertification.  And when a building is stripped of its LEED certification, LEEDigation is likely to follow, at least in some instances, because certification is so valuable to owners and developers. 

What do you think? 

Photo credit: Wade Roush

What is the Future of LEEDigation?

I recently published an article in Eco-Structure that I thought you would enjoy.  You may be surprised by my candid opening paragraphs:

I have spent the last two years writing Green Building Law Update, a blog based on the premise that green buildings will result in new litigation. To be more precise, I have written hundreds of blog posts predicting an increase in litigation involving the green building certification process which I call “LEEDigation.” Yet, I will be the first to admit that the wave of LEEDigation has not developed. There certainly are examples of this type of dispute, but the number of cases are few and far between. So I began asking the question: What is the LEEDigation tipping point?

Published in 2000, Malcolm Gladwell’s book The Tipping Point details the theory that there are moments when ideas, trends, or social behaviors cross a threshold and spread like wildfire. I still believe that LEEDigation will hit its tipping pointbut wonder why this moment has not yet materialized. . . .

It's a fairly short article, and I analyze the factors for the lack of LEEDigation, which I originally outlined in a blog post.  But what does the future of LEEDigation portend?

However, these three factors can and likely will change in the coming years, because there will be increased pressure on the USGBC to ensure that LEED buildings are performing properly and reducing energy usage. As a result, the USGBC is likely to come down harder by decertifying buildings that do not result in energy savings.

After reading a recent NPR article, I am convinced that my prediction is correct.  Check back on Wednesday and I will explain. 

Photo credit: Go Gratitude

Does Collaborative Design Minimize LEEDigation Risk?

Today, I am publishing a guest post from engineer Ian T. Hadden.  I asked Ian to write a guest post after he made the comment "there is something built into the high performance, sustainable design building method that works against litigation" on August 9.  Below, Ian elaborates on his point so please take a look and let us know what you think. 

If you are interested in guest posting for Green Building Law Update, please contact me at chris@cheathamconsulting.com with your story idea.  Your story should focus on risk management, legal or regulatory issues in the green building industry.   


By Ian T. Hadden

I apparently peaked Chris' interest with my recent comments about integrated, collaborative design reducing the rate of LEEDigation as he's afforded me the opportunity to expand my thoughts. As a little background, I've been actively involved in the LEED certification of 4 projects and am working as the Project Administrator for 14 additional projects. All of these projects are from the K-12 education sector and have used design build, traditional hard bid and construction management procurement methods.

Maybe my experiences have been out of the norm or they were less litigious because they were school districts. But after hearing tales of other LEED projects and continued exposure to LEED projects, I believe the process avoids more pitfalls that lead to litigation than it opens doors for new litigation paths. The process drives detailed conversations that start early and continue through the process and they highlight the interdependency of the owner, the designers and the contractors. And that's why I think LEEDigation will be more common from outside parties, such as the school in MN, than between members of the integrated design team.

As part of role as a LEED Project Administrator, I often find myself helping facilitate the integrated design process. Often, many of the team members do not have any experience with an integrated design process. To avoid confusion, let's define integrated design as the use of deliberate steps to ensure all parties affected by the life cycle of project are engaged in the development of the project. It has a focus on data collection (like energy modeling), discussion, visioning and goal setting. This is often done in charrettes which provide a face to face, personal meeting of this cross discipline group of people. In traditional design, the owner often doesn't have much contact with any of the design team beyond the architect. This face to face meeting with the opportunity to have input starts building a level of trust and mutual accountability across all parties. When trust is present in any relationship, it becomes easier for all parties to admit and take responsibility for errors and omissions and focus on corrective action rather than blame. Let's take look at a couple of hypothetical situations and since I'm an engineer we'll focus around energy issues.

In traditional design, without an energy model there are likely few conversations the owner and the mechanical engineer have other than "what kind of HVAC equipment do you like." With the owner's preference in mind, the engineer proceeds to design a system assuming maximum occupant capacity and maximum allowable lighting power density and the engineer adds a 10 or 15% safety factor onto his or her load calculations to make sure no one every complains about being to hot or cold. But when the electrical engineer is very aggressive and reduces the lighting power density and the average occupancy is only 85% of capacity the system is now oversized so it doesn't control humidity well and does not operate efficiently. Who is at fault? Why are they at fault? Was the mechanical engineer responsible for asking the electrical engineer about lighting or was it the electrical engineer's responsibility to tell the mechanical? Is the owner at fault for failing to discuss occupancy patterns?

By comparison, a project team pursuing LEED typically does an energy model, which drives discussions about these topics and more. With an energy model, systems are sized more closely to the design load and with fewer compounded safety factors. There is risk in this method that weather or occupancy patterns outside the design parameters may lead to comfort issues. But those risks have been discussed and been jointly accepted by the owner and the design team.

Innovative Programs Foster Green Technology

If you could ask some of the world's leading companies about their green technology programs, what would you ask? 

I was recently faced with this daunting question.  On August 17, I will be moderating a panel on green technology for the Bar Association of the District of Columbia.  Registration is still open and I hope you will consider attending the event if you are in the D.C. area.  There will be a question and answer period following the panelists' short presentations, so if you have questions, this is the perfect event for you. 

As I was preparing for the panel, I came across two intriguing programs created to foster green technology innovations.  First, the United States Patent and Trademark Office (USPTO) created the Green Technology Pilot Program.  Under the program, applications for patents pertaining to green technologies are "advanced out of turn," which means the application is reviewed before non-green technology applications. 

The Program is accepting the first 3,000 green technology petitions but the USPTO is suggesting the program may be extended.  I was particularly impressed with the USPTO's willingness to modify the program after its initial inception.  The program launched in December 2009, but the USPTO quickly modified it in May 2010 in order to include more green technologies. 

The second green technology program was created on the private side and launched in 2008.  The World Business Council for Sustainable Development launched the Eco-Patent Commons, which provides free access to environmentally-beneficial patents:

The Commons is open to all—with global participation by businesses in diverse industry sectors, Universities, research centers, etc. It contains initial and subsequent patent pledges by companies that become members of the Commons. The patents are displayed on a searchable website hosted by the World Business Council for Sustainable Development. . . .

The patents been pledged should provide 'environmental benefits', which may be a direct or indirect purpose of the patents. Some examples of environmental benefits are energy conservation or efficiency, pollution prevention (source reduction, waste reduction), use of environmentally preferable materials or substances, materials reduction and increased recyclability.

Both of these programs may prove beneficial to the green building industry as companies strive to create new green building technologies. 

What is the LEEDigation Tipping Point?

I was recently asked to write an article about LEEDigation - green building litigation - for an online construction magazine.  As I thought about the topic, I thought about the factors that have prevented this type of litigation from developing.  But then I wondered, "what is the tipping point for LEEDigation?" 

If you have not read Malcolm Gladwell's Tipping Point, I highly recommend it.  Basically, he defines tipping point as:

"the moment when an idea, trend or social behavior crosses a threshold, tips, and spreads like wildfire."

I will share my thoughts on the LEEDigation tipping point when my article is published.  But I want to hear from you today.

What do you think will be the LEEDigation tipping point?  Or will there even be one? 

Photo Credit:  matt_stanford

So You Want To Be a Green Building Attorney?

Suprme CourtOne of the great parts about my new job is I get to spend more time learning about what others are doing and figure out how we can work together.  I often speak to law students or prospective law students interested in green building careers.  The following post includes my standard advice to these students in case they happen upon my blog. 

Green building law is not a practice and it never will be

Green building is not a fad.  But it is important to understand that green building is a subset of the overall construction industry.  As "green" becomes standard practice, the term "green building" will go away and we will once again primarily refer to just "construction."  Anyone interested in green building law should think of it as a niche within a niche. 

As a young attorney, it is great to have a niche, like construction law.  It is even better to have a niche within a niche, like green building law.  It is rare to read an article or hear a speech about construction law.  Instead, the speaker or the writer focuses on a subtopic within the construction industry.  Green building is a fantastic subtopic on which to focus.

Choose your practice wisely

In my mind, there are three practice groups you can choose from if you are interested in green building law:  construction, real estate or environmental law.  Of the three practices, real estate attorneys generally have developed the most sophisticated green building practices to date.  Why?  Real estate attorneys help clients at the front end of the project with contracts, permitting, and leasing.  All of these areas touch on green building and certification.  On the other hand, construction attorneys, who generally focus on disputes and litigation, currently have fewer opportunities to work with green building clients.  There is simply not much green building litigation out there. 

Environmental attorneys also focus on areas that touch on green building.  I don't know how, but that is what I am told.  Someone want to explain this to me? 

If you want to do green building law, you should determine how you want to be involved with these projects, and choose your practice accordingly. 

Become a LEED Green Associate

I hear this question all the time -- "should I become a LEED Green Associate?"  The answer is very simple.  Yes!  Having a certification or credential to demonstrate your expertise in green building is extremely helpful. 

Does that help? 

Photo Credit: wallyg

What Are the Reasons for Lack of LEEDigation?

I continue to be amazed by the lack of litigation stemming from the LEED certification process - i.e. LEEDigation.  There are only two instances of pure LEEDigation - Shaw Development and Northland Pines.  I'm not even sure Northland Pines counts since it has not resulted in a lawsuit.  

What factors have contributed to the non-litigious nature of the LEED rating system so far?

Enforcement 

The recent Northland Pines High School LEED certification challenge was a bellwether as to how the United States Green Building Council plans to enforce the LEED rating system.  The USGBC made it clear that it was not interested in de-certifying buildings.  If the USGBC continues to work with owners, designers, and contractors to remedy green buildings instead of yanking LEED certification, then the chances for LEEDigation remain small.  

Goodwill

Prior to the Great Recession, many building owners developed green buildings for non-financial reasons.  When there were fewer LEED buildings, obtaining certification ensured press clippings and adoring fans.  It is difficult to measure loss of goodwill if a project fails to obtain a certain level of certification.  As LEED buildings have become more common, and green building regulations more prevalent, owners are demanding LEED certification for financial reasons (higher tenant demand, lower operating costs, increased productivity).  As financial reasons increase in importance, the chances for LEEDigation increases.  

The Economy

The Great Recession was certainly not a good thing, and the legal industry was not spared:  "As of April 8, 2010, over 14,696 people have been laid off by major law firms ... since January 1, 2008."  These layoffs occurred because there was a decrease in the demand for legal services, including litigation.  The construction and real estate industries were particularly hard hit by the recession, and demand for litigation from these industries correspondingly dropped.  The green building industry may have avoided significant LEEDigation because parties were less willing to engage in costly litigation. 

Do you have any theories as to why LEEDigation has not developed? 

Photo Credit:  w0ld

Green Building Challenge Policy Requires Fixes

Reader's note:  This is my last post on the LEED certification challenge.  Thanks for staying with me.

I thought I would end my discussion of the Northland Pines High School LEED certification challenge with some constructive suggestions.  The LEED challenge issue is not going away anytime soon and clearly requires some fixes. 

1.  Appeals of LEED certification challenges most go to an independent body.  It is not appropriate for the United States Green Building Council (USGBC) or the Green Building Certification Institute (GBCI)  to review and decide LEED certification challenges when these two parties are responsible for deciding certification initially.  There may also be constitutional authority issues if a party is forced to challenge a federal project's LEED certification to the USGBC/GBCI. 

2.  The LEED Policy Manual absolutely must be incorporated into the LEED reference manuals.  This is a no-brainer. 

3.  Energy modeling is fuzzy math.  LEED certification for new construction must be tied to actual energy usage as quickly as possible.  I realize it takes years to change the LEED rating system, but the next version that comes out should include a re-certification requirement based on actual energy use. 

4.  Standing and timeliness requirements must be created for the LEED challenge process.  Otherwise, the USGBC/GBCI will be overwhelmed with challenges. 

5.  Most importantly, if you are a contractor, architect or engineer, you absolutely must consider the implications and liabilities created by the LEED certification challenge process.  If you guarantee some level of certification, you may be responsible if a subsequent LEED challenge proves successful.  Will you be responsible to defend against the challenge? 

Do you have any more thoughts on the LEED challenge process?  How do we fix it?

Should LEED Be More Stringent?

Reader's note:  Two more posts on the LEED certification challenge. 

I recently read the book Greed to Green, by David Gottfried, which describes how the United States Green Building Council (USGBC), and the LEED rating system, were launched.  You can tell that Gottfried is quite proud - and rightfully so - of the USGBC's accomplishments. 

But with the Northland Pines High School LEED certification challenge, the USGBC faced a difficult question. The LEED rating system has morphed into a green building monster.  In fact, the LEED rating system is now bigger than the organization that tries to manage it.  With the recent LEED challenge, the USGBC had to decide what to do if a project did not comply with LEED certification requirements when it initially received its certification. 

Should the USGBC revoke LEED certification?

Or should the USGBC allow revisions to the original LEED submittals?

The USGBC chose to allow revisions through subsequent submittals, as highlighted in the Taylor Engineering report: "This was corrected in a revision to the energy models starting with the version dated December 10, 2009 that USGBC requested to fix this and other inconsistencies between the model of the proposed design and the actual design."

I can see both sides.  On the one hand, the USGBC was dealing with a "legacy" project.  The Northland Pines High School was the first public high school in the country to receive LEED Gold certification.  The USGBC has focused much of its marketing prowess on schools, and the Northland Pines High School had been highlighted in at least one USGBC publication.  Most importantly, the USGBC's primary goal is to create more green buildings. 

On the other hand, the LEED certification process must have some teeth.  At some point, the USGBC will have to administer its rating system more stringently or LEED will become a diluted brand.  Rob Watson - the "father of LEED" - made similar comments yesterday regarding the challenge: "As I was helping shape the system in its early days, I believe that LEED’s initial job was to achieve market penetration and to then become increasingly more stringent in its technical and compliance requirements as the market became more capable."

I just hope the USGBC does not wait too long. 

Questions Remain Regarding LEED Certification Challenge

Reader's note:  Three more posts on the LEED certification challenge.   

If you have taken a look at the Northland Pines High School LEED certification challenge documents, you know that the documents are extremely technical.  I am not an engineer but I will share with you some of the more interesting parts of the documents that caught my attention. 

Taylor Engineering was retained by the United States Green Building Council (USGBC) to review the challenge allegations.  I was immediately drawn to the first substantive paragraph of the Taylor Engineering report: 

"While I disagree with most of the complainants’ claims, there were several violations of Standard 62.1 and Standard 90.1 requirements in the design as originally documented. As such, the original design did not meet Indoor Environmental Quality (EQ) Prerequisite 1 and Energy and Atmosphere (EA) Prerequisite 2 of LEED NC version 2.1. However, based on follow-up documentation provided by the design team in response to our comments, I feel the project provides a sufficient level of compliance with these Standards and hence the LEED prerequisites. While I am not fully confident the project merits all of the EA Credit 1 Enhanced Energy Performance points awarded to it, the design team diligently responded to several rounds of comments based on our detailed review of the DOE-2.2 simulations and it appears that they reasonably followed the modeling rules established by ASHRAE Standard 90.1. Hence I accept their EA Credit 1 claim of 7 points."

The most important statement to me in the preceding paragraph is that the original design did not meet the LEED requirements: "the original design did not meet Indoor Environmental Quality (EQ) Prerequisite 1 and Energy and Atmosphere (EA) Prerequisite 2 of LEED NC version 2.1."  After reading this paragraph, I have many unanswered questions:

  • What additional documentation was provided - "the design team diligently responded to several rounds of comments" - to satisfy Taylor Engineering? 
  • How can follow-up documentation ensure that a project is in compliance with ASHRAE standards and LEED prerequisites when it was determined that there were violations in the original design?
  • What are the standards for LEED certification?  Is "diligently" responding to comments and "reasonably" following ASHRAE energy modeling rules enough? 
The remainder of the Taylor Engineering report highlights responses to each of the LEED challenge allegations.  Much of the challenge focused on violations of ASHRAE Standard 90.1, which is essentially an energy modeling standard.  One response in particular drew my interest, not based on substance, but because of the disclosure of revised energy models:

"Allegation: Violation of Standard 90.1-1999 6.2 Mandatory Provisions (page 18). The complaint says the chiller does not meet minimum requirements. Independent consultant review comments: Per Table 6.2.1C of the 1999 version, the minimum COP at ARI conditions is 2.8 and the minimum IPLV is 2.8. The chiller schedule on H1.1 shows a COP of 2.9. It is not clear from the schedule if this is at ARI or design conditions. The installed chiller per submittals has an ARI EER of 2.81. The IPLV is not scheduled, but if the full load efficiency is 2.8, it is almost certain that the IPLV will be higher. Thus the chiller does meet Standard 90.1-1999. (Note that the chiller efficiency in the energy model, according to EAp2 documentation, has a COP of 3.0, which is not consistent with the equipment schedule. This was corrected in a revision to the energy models starting with the version dated December 10, 2009 that USGBC requested to fix this and other inconsistencies between the model of the proposed design and the actual design.) No apparent violation."

Again, I am not an engineer.  From these descriptions, I understand that after the school's LEED certification was challenged, the USGBC determined that the energy modeling was inadequate and requested revisions.  Based on these revised energy models, Taylor Engineering and the USGBC determined the school was reasonably in compliance with LEED.

Do I have that right?

Photo credit: nielsvk

A Green Building Law Gift For You!

We are going to momentarily pause our discussion of the LEED certification challenge because I have a gift for you today.   
 
 
Last week, my colleague Steve McBrady and I hosted the webinar "Greener Pastures: Managing Risks While Navigating Federal and State Green Building Opportunities."  I enjoyed the presentation because, for the first time, I discussed LEEDigation other than Shaw Development v. Southern Builders
 
What did I discuss? 
 
You will have to listen to find out.  I even discussed a case that I have not written about on Green Building Law Update before.
 
So please check out our webinar and let me know if you have any thoughts or questions. 

Breaking: USGBC Stands By Its LEED Challenge Decision

Welcome to our first afternoon edition of Green Building Law Update. 

No one is quite sure whether the challengers to the Northland Pines High School LEED certification have grounds for an appeal.  But I figured two statements by the United States Green Building Council (USGBC) regarding the "appeal" warranted a special blog post.  First, Brendan Owens, USGBC's vice president, was quoted yesterday in ENR regarding the LEED challenge controversy:  

"Brendan Owens, USGBC's vice president of LEED technical development, says USGBC is using the challenge as a case study for the certification team, noting, 'We can do continuous improvement and still have been right in the past.'"

I also received the following statement from Susan Dorn, USGBC General Counsel, regarding the recent "appeal" by the LEED challengers: 

"USGBC stands by its conclusion that the Northland Pines High School project and project team complied with all the requirements necessary to achieve LEED Gold certification.  In response to a complaint, USGBC followed its certification challenge policy, which requires a thorough and technically rigorous review of the project. Given the vociferous and confrontational nature of the complaint, we further asked for two additional and separate technical reports detailing the expert professional opinions of highly regarded independent consultants. Their findings agreed with ours.

Anyone who has actually been through a LEED certification review knows that it is a  dialogue between the project team and the reviewer. After reviewing the documentation submitted by a project team, the reviewer issues a request for more information in a "Preliminary Review".  The project team responds to any reviewer comments and resubmits.   The reviewer then reassesses the project and issues a 'Final Review'.

The process USGBC used to deal with this appeal was similar to our standard process but in addition to having the original submission and reviewing everything we normally review we also had the complaint document.  There were issues in the complaint document that were not (from our independent consultant's point of view) adequately addressed by the 2007  submission so we asked for and received additional clarifying documentation from the project team.  This additional documentation answered all open questions and made it possible for USGBC and the independent consultants hired to provide their expert technical opinions to conclude that the project does in fact comply with LEED Gold requirements.

LEED's intent, and USGBC's mission, is about helping people learn about and understand how to design, build and operate better buildings.  Buildings are complex systems of systems and any of the 100,000 of decisions associated with design, construction and operation can always be second-guessed. We are confident that our due diligence has been more than sufficient to put these issues to rest, and we are moving forward to focus our efforts where they do the most good -- advancing the market uptake of green buildings and communities that is at the heart of our work."

As Stephen Del Percio has said, this has been a wild week for LEEDigation.  I have linked to some reactions from around the interwebs below.  Be sure to check them out if you have a moment.

Any reactions to this controversy? 

Photo credit:  realmofreals

Related Links

Rating Controversy Heats Up (ENR)
Wild Week for Green Real Estate Includes Response to USGBC from Northland Pines Appellants (GRELJ)
Needling Naysayers or Constructive Critics--The Tough Case Of Northland Pines (GBLB)
LEED Certification Challenge in Less Than 140 Characters (BPCL)
First Ever LEED Challenge Goes to Appeal (Builders Counsel Blog)
 

What Motivates a LEED Certification Challenge?

As we begin our review of the challenge to the Northland Pines High School LEED certification, the most obvious starting point is the LEED challenge itself.

The challenge was prepared by two engineers - Mark Lentz and Lawrence Spielvogel - on behalf of five appellants.  By just the second paragraph, my jaw was on the floor:

"The engineering professionals preparing this appeal were originally retained to review the design for non-compliance with LEED prerequisites due to litigation threats made by the design team against the appellants for publicly expressing their concerns for the design provided."

Think about that sentence for a minute.  According to the LEED challenge, the threat of LEEDigation - "litigation threats made by the design team" - led to LEEDigation - the LEED challenge.

The challenge then explains that the grounds for the LEED protest are the design and construction of the project did not meet LEED prerequisites EA1, EA2 and EQ1:

EA1, Prerequisite, Fundamental Building Systems Commissioning was not complied with. The first three steps of the Commissioning Process include review of design intent, basis of design documentation, and incorporation of commissioning requirements into the Construction Documents. All are required prior to bidding and construction. The reviewing professionals have been unable to confirm that any were performed. Had a competently executed Design Review been performed by the Commissioning Agent, as required by LEEDTM NC 2.1, ANSI/ASHRAE/IESNA Standard 90.1-1999 and ASHRAE Guideline 1-1996, the majority of the EA2 and EQ1 violations identified by the reviewing professionals should have been identified by the Commissioning Agent and corrected by the design team prior to the issuance of the Construction Documents for bid.

EA2, Prerequisite, Minimum Energy Performance: The design of the HVAC systems and other listed elements of the building do not comply with all of the requirements of ANSI/ASHRAE/IESNA Standard 90.1-1999. The scope and number of prerequisites violations was pervasive.

EQ1, Prerequisite, Minimum IAQ Performance: The design of the HVAC systems failed to comply with ANSI/ASHRAE Standard 62.1-1999, Ventilation for Acceptable Indoor Air Quality. Validation computations were performed to determine the actual basis for ventilation rates and to determine what the actual ventilation requirements would have been had the required Ventilation Rate Procedure computations been performed. These computations established that the actual basis for ventilation was the Wisconsin Enrolled Code, which produces significantly lower ventilation rates at both individual zones and at the system level than those which would have otherwise been required to comply with ANSI/ASHRAE Standard 62.1-1999.

What are your thoughts on the grounds for the LEED challenge?  Have you witnessed problems with these credits?

Photo Credit: Jinho.Jung

Related Links

LEED Credibility Destroyed (pdf)
Complete NPHS Appeal (pdf)
Horizon Report (pdf)
Taylor Report (pdf)
USGBC Letter (pdf)
Response to Horizon Engineering Report (pdf)
Response to Taylor Engineering Report (pdf)
Appellants' Statement (pdf)

LEED Certification Challengers Speak Out

News continues to emerge about the challenge to the LEED Gold certification received by the Northland Pines High School.  Green Building Law Update previously reported on a statement made by United States Green Building Council (USGBC) General Counsel Susan Dorn that the certification challenge had been denied.
 
There is so much more to this story.
 
First off, the LEED challengers are not satisfied with the result, and they are not going away quietly.  This past weekend the challengers and their experts released a statement and documentation surrounding the LEED challenge.  The LEED challengers are five individuals from the community surrounding the high school:

  • Mr. Ronald Ritzer, an architectural design professional and local builder of high performance homes
  • Mr. Roderick McKinnon, a commercial property developer
  • Mr. Patrick Smith, a construction professional
  • Dr. Kevin Branham, a Doctor of Chiropractic with a Masters degree in Public Health
  • Mr. Curt Hartwig, a local businessman and community leader

Since I previously published the USGBC's statement regarding the challenge, here is the other side of the story, as told by the five LEED challengers: 

What is all the ruckus about Northland Pines?
 
In 2004, the voters of Vilas County Wisconsin voted to approve the sale of $28,535,000 worth of bonds to finance a new High School for the Northland Pines district.


The appellants in this case all served on the Building Committee for the new school and each brought specific talents and experience in design and construction of large buildings. Each was dedicated to the proposition of creating the most efficient structure possible.
 
The design team and school board discouraged any outside input and set forth to design and construct the school as they saw fit.
 
As the design developed, the appellants questioned whether the facility would indeed meet the prerequisites for LEED® Certification and were told that it would despite what appeared to be glaring shortfalls with respect to these requirements.
 
The appellants retained the service of two highly regarded consulting engineers to review the plans. Both of them determined that the facility as designed would not qualify for LEED® Certification.
 
In December 2008, the appellants filed an appeal with the USGBC challenging the award of the Gold Certification given to Northland Pines. Some 16 months later the appellants were notified that the USGBC had looked into the matter and found everything to be fine. They based this on reports from two more consulting engineers who said that the building did not meet the prerequisites but concluded that “pretty close” is close enough. When the appellants' engineers asked for the back up data to the USGBC reports, they were told that they were pretty busy and would address that request when they have time. Time has passed and the requested materials have not been forthcoming. Why?
 
On behalf of the taxpayers of Vilas County who would like to know with certainty whether they got what they paid for or not, we ask the engineering community to look at this file and tell us, did we miss something here? How can it be alright to certify a building that doesn’t fully comply with the rules set forth by the body that is doing the certifications?
 
We would love to hear what you think. We are only in search of the truth which ultimately will be what is best for Northland Pines.

Following this post are links to the engineering reports, correspondence and opinions that have been made available by the LEED challengers.  If you have a few minutes, I would recommend reviewing these documents.  We will be reviewing discussing these documents in the coming weeks.
 
Please share your opinion on this LEED challenge.  I would like to put together a post with some of the best responses from you, the readers.

Photo credit: Reway2007
 
Related Links:

LEED Credibility Destroyed (pdf)
Complete NPHS Appeal (pdf)
Horizon Report (pdf)
Taylor Report (pdf)
USGBC Letter (pdf)
Response to Horizon Engineering Report (pdf)
Response to Taylor Engineering Report (pdf)
Appellants' Statement (pdf)
 

Join Me For A Green Building Legal Webinar

I am excited to inform you about a free upcoming webinar that my firm is offering on green building legal issues on June 2.  Back in April, George Ruttinger, Stephen McBrady and myself presented "Legal Considerations When Building Green" to the Construction Industry Round Table.  I think it is fair to say I got grilled about contract language to accomodate LEED certification in what was an enjoyable question and answer period. 

On June 2, we will be presenting on similar green building legal topics.  This webinar will mark the first time I get to publicly speak about the LEED Certification Challenge policy and the Wisconsin challenge.  I am anticipating some difficult questions and I hope my Green Building Law Update readers do not disappoint. 

Here are the details:  

Crowell & Moring presents: "Greener Pastures: Managing Risks While Navigating Emerging Federal and State Green Building Opportunities

June 2, 2010

2:00 p.m. to 3:00 p.m EDT
 
You can sign up here: http://www.crowell.com/events/gk/060210/

Please sign up now to learn about green building legal issues and join the discussion.  

The Clock Continues to Run On LEED Challenges

I am wrapping up review of the LEED Certification Challenge Policy.  Today, I will discuss the third of three reasons why the challenge policy creates significant risk for parties involved in a project seeking LEED certification:

(1) Any person can challenge a building's LEED certification;
(2) Any and all LEED points can be challenged; and
(3) A LEED certification challenge can be brought at any time. 

In the legal world, statutes of limitations usually require that a case be brought within a certain time period.  Such a statute of limitation does not exist within the challenge policy.  Again, here is the relevant challenge language:

"Persons desiring to make a complaint may submit a written statement identifying the persons alleged to be involved and the facts concerning the alleged conduct in detail, and, to the extent available, the statement shall be accompanied by any available documentation. The statement shall identify others who may have knowledge of the facts and circumstances concerning the allegation. The person making the complaint shall identify him/herself by name, address, and telephone number."

Of the three factors, I anticipate that the timeliness of LEED challenges will be adjusted first.  Permitting LEED challenges on any building, no matter the vintage, is simply untenable.  Here are a couple of issues that immediately come to mind:

  • Will architects and contractors have to seek additional insurance to cover a project in perpetuity?
  • What happens if a project has its LEED certification stripped ten years later and is no longer in compliance with a green building regulation that requires certification?

What do you think? 

Photo Credit:  DaDaAce

Related Links

Cranks, Gadlfies and Rivals Can Challenge LEED Status (GBLU)

Every Single LEED Point Can Be Challenged (GBLU)

LEED Certification Challenge Policy (GBLU)

 

Who Is Responsible For A Successful LEED Challenge?

Under the LEED Certification Challenge policy, all LEED points can be challenged by any "person," resulting in reduced or revoked LEED certification.  Today, I am going to describe a scenario under which such a LEED challenge could prove costly.  

A few months ago, attorney Matt Devries wrote about a news report in Nashville, Tennessee that uncovered illegal dumping by a subcontractor at the Music City Center project (click here to see the incredible video).

The Music City Center project was slated to recycle demolition debris in order to contribute points towards LEED certification.  But the news report uncovered a subcontractor dumping debris in landfills.   

Let's create a hypothetical out of this scenario.  Assume the Music City Center project is a design-build project (the prime contractor is responsible for design and construction).  Further, the prime contractor agreed to guarantee LEED Gold certification.  A news channel records this video but sits on it until after construction is completed and LEED Gold certification is awarded.  The contractor achieved one LEED point based on the construction waste management strategy and the project ultimately achieved LEED Gold certification by one point.  

Then the video airs.  

And a "person" challenges the LEED certification based on the video.

What happens?  Who is responsible for the subcontractor's actions?

Related Links: 

State Finds Illegal Dumping From Music City Center (NewChannel5)

Green Building Reality Show? Music City Center Contractor Nabbed on Video Disposing Recyclable Materials (Best Practices Construction Law)

LEED Certification Challenge Policy (GBLU)

Breaking LEEDigation: NASCAR Star Involved in Green Construction Dispute

I am going to take a temporary hiatus today to jump from the Wisconsin LEED challenge to discuss breaking LEEDigation news.  

LEEDigation is, of course, litigation involving LEED certification.  I have previously discussed Shaw Development v. Southern Builders, which is an example of a project failing to achieve LEED certification.  But how else could LEEDigation develop?

Could you imagine a scenario where an owner refuses to pay for additional costs necessary to achieve LEED certification?  What if the owner was a famous NASCAR driver?  

According to a group of subcontractors, this is what happened when NASCAR star Kyle Busch requested upgrades during construction so that his new headquarters would achieve LEED certification:

"Nearly a dozen companies involved in building a new race shop for Kyle Busch say they have filed liens or intend to file liens because they are collectively owed about $1 million for work done on a high-tech headquarters built for Busch in Mooresville.

The project's general contractor, L.B. Builders Construction Group, owns the building and has been in mediation with Busch's attorneys this week.

Busch was supposed to buy the building but has delayed the purchase because the final price tag was more than expected. The subcontractors say that's because the young multimillionaire NASCAR driver wanted a top-of-the-line, LEED-certified building and ordered upgrades during construction."

At this point, the subcontractors have only filed liens and have not undertaken litigation to enforce the liens.  The subcontractors involved include an electrical supplies distributor, a mechanical equipment vendor, and a glass and aluminum company.  

When I discuss LEEDigation, it is most often in the context of failing to achieve certification.  But the opposite scenario can certainly occur:  you achieve certification but the owner refuses to pay for the costs associated with the green building components.  If an owner decides in the middle of a project to seek LEED certification, it is imperative that the architect and contractor not only request contract modifications but also educate the owner about the additional costs that will be incurred as a result.

Photo Credit:  Amplified Photography

Related Links:

Busch Dispute Centers On Green Construction (Charlotte Observer)

Shaw Development v. Southern Builders (GBLU)

Every Single LEED Point Can Be Challenged

On Wednesday, I began a review of the Green Building Certification Institute's ("GBCI") LEED Certification Challenge policy.  There are three reasons why the LEED Certification Challenge Policy creates significant risk for all parties involved in a LEED-certified project:

(1) Any person can challenge a building's LEED certification;
(2) Any and all LEED points can be challenged; and
(3) A LEED certification challenge can be brought at any time.  

Today we are looking at the second point, "any and all LEED points can be challenged."  Here is the relevant language from the policy:

"GBCI may revoke previously granted LEED certification or take other action regarding LEED certification such as determine to reduce points or category of LEED certification previously granted, if GBCI determines that credits/prerequisites for LEED certification were granted based on erroneous determinations or inaccurately or falsely submitted documentation."  

Obviously, the opportunities to challenge LEED certification are only limited by the LEED prerequisites and credits obtained on a specific project.  In theory, a person could challenge every single prerequisite and credit applicable to a project.  

If you are an architect, engineer, contractor, subcontractor, consultant or any other party that takes part in projects seeking LEED certification, you should be concerned by the additional liability created under the challenge policy.  Under the policy, one LEED point that you were not involved with could be challenged and result in LEED certification being revoked or stripped.   If you are responsible for a building's LEED certification, you could find yourself defending a challenge to every single point and prerequisite, whether those points were your responsibility or not. 

On Monday, we are going to look at a hypothetical (with video!) of how this liability could arise.  

Related Links

Cranks, Gadflies and Rivals Can Challenge LEED Status (GBLU)

Cranks, Gadflies and Rivals Can Challenge LEED Status

A few weeks ago, after a green building legal presentation, I remarked to a colleague that I was growing tired of discussing Shaw Development v. Southern Builders, the prime example of LEEDigation.  Less than one week later, along came the Wisconsin LEED challenge and the discovery of the LEED Certification Challenge Policy.  

The LEED Certification Challenge Policy is the most significant legal risk for LEED certified projects that I have seen to date.  You may recall the discussion of Minimum Project Requirements last year and the possibility of LEED decertification.  The risks inherent in the LEED Certification Challenge Policy substantially dwarf the LEED decertification issue.  

There are three reasons why the LEED Certification Challenge Policy creates new risks for all parties involved in a LEED-certified project:  
(a) Any person can challenge certification;
(b) Any and all LEED points can be challenged; and
(c) A LEED certification challenge can be brought at any time.  
Lets start with "anyone can challenge certification" - i.e. standing to bring a LEED challenge.  

In order to bring a lawsuit, most American courts require a person to have standing.  A person has standing if he or she can show three things:
(1) Injury - the person was harmed;
(2) Causation - the injury was caused by the conduct of the other party; and
(3) Redressability - a favorable court decision can remedy the injury.
Under the LEED Certification Challenge Policy, any person can challenge any project's LEED certification without demonstrating additional standing requirements.  Here's the key language from the policy:
"Persons concerned with possible inaccurately granted LEED certification are encouraged to contact the GBCI, provided however that GBCI reserves the right to institute an investigation and review of such possible errors or inaccuracy or veracity of documentation without third party complaint.  

Person desiring to make a complaint may submit a written statement identifying the person alleged to be involved and the facts concerning the alleged conduct. . . . The person making the complaint shall identify him/herself by name, address, and telephone number."
As Will Clark recently put it, this opens the door to for "cranks, gadflies, or rivals" to bring LEED challenges.  Here are some examples of "persons" likely to bring LEED challenges: 
  • Environmental groups could challenge a corporations' achievement of LEED certification in order to protest corporate actions.  
  • Concerned citizens could challenge local projects' LEED certification if the citizens want a greener project or a less expensive project.  
  • Rival developers could challenge each other's LEED certification in order to develop a business advantage. 

The possibilities for "persons" that will bring LEED challenges seem limitless.  What other examples can you come up with?  

Related Links: 

Shaw Development v. Southern Builders (GBLU)

Northland Pines High School LEED Challenge (GBLU)

This Post is Really Imporant and Not For the Faint of Heart (GBLU)

Will Clark on Twitter (Twitter)

First Ever LEED Challenge Denied

Up in Wisconsin, a group of concerned citizens challenged the LEED certification of a high school under the Green Building Certification Institute's (GBCI) Certification Challenge Policy.  The LEED challenge came to light in December 2009 although it was originally filed in 2008.  Last week, the United States Green Building Council (USGBC) denied the LEED challenge.  The following is a description of the ruling that I received from Susan Dorn, USGBC and GBCI General Counsel:  
"(On April 28, the) USGBC concluded its review of a challenge to the certification of a Gold LEED for Schools, that of Northland Pines High School (NPHS) in Eagle River, Wisconsin. In the process of its review, USGBC engaged two extraordinarily qualified engineering consultants (Taylor Engineering and Horizon Engineering) to review the technical merits of the prerequisites and credits in question.  Further, USGBC staff performed a site visit of the school.  After an exhaustive review of the final engineering reports and documentation submitted by NPHS, USGBC concluded that there was sufficient evidence to show that the school's perquisites and credits had been met.  Thus, no adverse action will be taken as to the LEED certification of NPHS.  Challenges to LEED certification advanced in the future will be undertaken by GBCI; the challenge to NPHS was reviewed by USGBC as a legacy project."
So there you have it, the first official LEED Certification Challenge has been denied.  Until a copy of the Wisconsin residents' complaint is made public, I don't have much to add on this particular challenge.  This is another example of a green school that has resulted in a dispute, which further supports my theory that schools will be the hotbed of LEEDigation. 

I do have plenty to add regarding the general concept of the LEED Certification Challenge policy.  

But I want to hear your thoughts first.  What's your view of the LEED Certification Challenge policy?  What will be the ramifications?

Related Links:

LEED Funding for Green School Causes Construction Delay (GBLU)

Did You Know You Can Challenge LEED Certification?

I am going to be honest with you, I have been sitting on some LEEDigation-related stories.  I sat on these stories because I wanted to understand the implications before writing about them.  

Take our first story from Wisconsin.  As was first reported at the Green Real Estate Law Journal, a group of Wisconsin residents filed a challenge to a project's LEED certification:

"[A]ccording to an article that appeared last week in Eagle River, Wisconsin’s Vilas County News-Review, a group of local residents have filed a 125-page complaint with USGBC that challenges the award of LEED Gold certification to the Northland Pines High School, which was completed in the fall of 2006 and earned formal certification under LEED for New Construction Version 2.0/2.1 on May 10, 2007. It’s unclear when the complaint was filed or what specific allegations it asserts. However, according to the article, the residents initially raised concerns about the project during the design phase, claiming that a more efficient HVAC system was available and should have been specified by Hoffman LLC, the Appleton, Wisconsin-based firm that designed the school."

You may recall that back in July 2009, we discussed the concept of LEED Decertification in the LEED 2009 rating system if a project fails to attain Minimum Project Requirements.  The Wisconsin project was actually certified under a prior LEED rating system and was challenged under the "Certification Challenge Policy."  

When I first learned of this story, I asked a question that many of you may also be asking.  There's a LEED Certification Challenge Policy?  Yes, according to the Green Building Certification Institute (GBCI) LEED Policy Manual (.pdf):

"GBCI may revoke previously granted LEED certification or take other action regarding LEED certification such as determine to reduce points or category of LEED certification previously granted, if GBCI determines that credits/prerequisites for LEED certification were granted based on erroneous determinations or inaccurately or falsely submitted documentation. Persons concerned with possible inaccurately granted LEED certification are encouraged to contact the GBCI, provided, however that GBCI reserves the right to institute an investigation and review of such possible errors or inaccuracy or veracity of documentation without third party complaint.

Persons desiring to make a complaint may submit a written statement identifying the persons alleged to be involved and the facts concerning the alleged conduct in detail, and, to the extent available, the statement shall be accompanied by any available documentation. The statement shall identify others who may have knowledge of the facts and circumstances concerning the allegation. The person making the complaint shall identify him/herself by name, address, and telephone number.

Upon receipt of a complaint or upon the finding of concern, the GBCI President shall confer with legal counsel. The GBCI President shall direct a detailed technical review of documentation submitted in connection with the project which served as basis of award of credit/prerequisite. GBCI may request supplemental information from the person(s) making the complaint.

If GBCI determines that the complaint is frivolous or not relevant to credits required for LEED certification, no further action will be taken. Should GBCI determine that the allegation appears credible and the allegation is founded on the error or inaccuracy of GBCI or veracity of the documentation submitted in support of the credits/prerequisites in question, GBCI shall proceed with its investigation, requesting information from the Project Manager and/or the Owner or others involved in the project."

What do you think was the result of the first LEED challenge? 

Related Links:

Wisconsin Residents Appealing LEED Gold Certification of Northland Pines High School (Green Real Estate Law Journal)

This Post is Really Important and Is Not For the Faint of Heart (GBLU)

GBCI LEED Certification Policy Manual (GBCI)(.pdf)

Design Flaws Impact Offshore Wind Energy Project

From time to time, I like to step outside the green building industry and look at construction of renewable energy projects.  While windmill construction is nothing new, countries are looking for new opportunities to develop wind energy.  One new type of development has certainly caught my attention from a risk management standpoint. 
 
A recent Wall Street Journal article highlighted offshore wind energy projects being constructed in Europe:
"By offering generous incentives, the U.K. already has built more offshore wind power than any other nation.  Now it is planning a wave of vast new wind farms, in some of Europe's stormiest waters." 
The construction of offshore wind energy will require significant foundations, some of which have already proven problematic:
"Some dismiss the windmills as quixotic. . . . And many more challenges await, judging from those the project at Kent faced, ranging from the need to protect marine worms to a design flaw that causes turbines to sink into their foundations."
As a construction attorney, the two words "design flaw" always catch my eye.  In this case, the design flaw in the windmills could prove costly: 
"Owners of a Dutch wind farm found their turbines had shifted a few inches, the result of a design flaw in equipment connecting the towers to their foundations.  RenewableUK, a trade association, said most of the 336 turbines operating in the U.K. waters could have the same fault, and would cost about $250,000 each to fix."  
A $250,000 fix for 336 turbines would cost $84,000,000.
 
It is certainly important to develop new renewable energy sources.  But it's also important to understand that new risks and liabilities will almost certainly emerge from new types of renewable energy construction.
 
What do you think?    
 
Photo credit:  K2D2vaca
 
Related Links: 
 

Fly Ash: Green Building Material, Hazardous Waste?

My first legal case involved "fly ash."  I had no idea what fly ash was so I looked it up in the dictionary.  Fly ash is a "coal-combustion by-product" (CCB) that is often used in concrete as a replacement for portland cement.  When used in massive concrete structures, like dam construction, fly ash can result in a significant cost savings.  

Despite all of my work with fly ash, I had never read or heard anyone mention that fly ash could be the "new asbestos."  That was, until I read an ENR article titled "Fly Ash Looms as the 'New Asbestos":

"Concrete groups are on tenterhooks, waiting for the U.S. Environmental Protection Agency to publish a proposed rule that aims to designate fly ash and other coal-combustion by-products as hazardous waste. The concrete sector is concerned even about the ramifications of a 'hybrid' rule that would allow beneficial uses of CCBs to continue."

But what does fly ash have to do with green building?  According to the Portland Cement Association, fly ash can be used in green buildings to achieve an innovation point:
"[T]he USGBC has issued a credit interpretation that allows for an innovation credit if 40% less cement is used than in typical construction, or if 40% of the cement in concrete is replaced with slag cement, fly ash, or both."
A ruling that fly ash is a hazardous waste could reduce the amount of the material used in future construction.  Additionally, handling of existing structures that contain fly ash will become more complicated and costly.  

What do you think?  
 
Related Links

 

Insurers Still Unsure of Green Building Risks

One of my very first Green Building Law Update posts focused on the insurance and surety industries' concerns related to green building.  Nearly two years later, some in the insurance industry are still expressing concerns regarding green building projects.  A recent P&C National Underwriter article highlighted numerous insurance-related concerns related to green buildings: 
  • Vegetative roofing—using soil and plants to insulate a roof—minimizes the loss of heat in the winter and reduces cooling expenses in the summer. However, the additional weight of soil and vegetation creates structural integrity and collapse potential. Rainwater accumulation adds additional weight to the roofing structure.
     
  • Rainwater runoff in green buildings is often collected in cisterns used for on-site cooling and gray-water systems (that is, waste water—including rainwater—often used for irrigation). But properly channeling the water collection from the roof to the holding tanks might provide challenges beyond traditional gutter systems.
  • Alternative energy generation systems common in green real estate—such as solar panels, wind turbines and geo-thermal heating systems—need to be insured properly. Whether property insurance coverage is provided under a commercial property or a businessowner’s policy, specific covered property should include damage to these alternative energy systems.

I often hear from architects, engineers and contractors who want to know what the hold up is in green building insurance and surety instruments.  

The holdup is that the insurance and surety industries do not understand the risks associated with this fairly new type of construction.  Insurance business models dicatate that insurers do not lose more than is paid out.  In order to create green building insurance, you have to understand how often green buildings fail and result in payouts. 
 
Until more green building data becomes available, it will be difficult to create green building insurance and surety instruments.
 
Photo:  urbangarden
 
Related Links:
 
 

Conflicts Arise Between Military Construction and Green Building

As federal agencies continue to push green building certification, some federal projects are running into conflicts when building green.  Take for example, a recent article I reviewed regarding military construction and LEED certification.  The basic premise of the article is that green building rating systems and military construction do not always work together

"'An office building and military building are very different,' said Katrina Rosa, principle and director of LEED services for The EcoLogic Studio LLC. 'The reviewers are trained to review an office building.'

She said efforts to better train reviewers should help in the future. Input from contractors working in military construction can encourage other changes as well." 

The article then provides examples of conflicts between military construction and the LEED rating system: 

  • "Energy efficiency is one of the key focus areas for certification. Robbins said he planned to implement energy-efficient air conditioning at a Navy building in Monterey to earn credits.  Instead, he ended up with the most energy-efficient option -- the Navy didn’t want any air conditioning.  'The other side is, we lose LEED points,' [James Robbins, principal at RJC Architects Inc.] said."
  • "On another project at a Marine Corps base, he said he ran into a different dilemma. An inexpensive option for gaining points would be adding a bike rack to the development, he said. But those Marines tended not to ride bicycles." 
  • "Robbins cited a boiler system at Camp Pendleton that repeatedly faced problems from the hard water. He said the military could not accommodate the necessary upkeep and preventative measures needed to use the new system."

I was surprised that another conflict between military construction and green building rating systems was not mentioned.  On Wednesday, we will look at that conflict and an interesting study on the topic.

Any idea what conflict I am talking about?

Related Links:

LEED standards not perfect fit for MILCON; change possible (San Diego Source)

Some New Green Building Ideas

One of the first publications that peaked my interest in green building was the AGC's SmartBrief. Each day, I would read about a new green building project or development in SmartBrief. In large part because of SmartBrief, I began to explore the legal implications associated with green building.

Last week, my blog post "Does Your Construction Project Require Davis-Bacon Wages?" was featured as SmartBrief's headline article. I was humbled and reminded that we should all support others when given the opportunity.

I have recently come across two intriguing green building legal projects that caught my attention:

  • Joshua Naggar has developed a LEED legal clinic at the University of Illinois Law School. Law students frequently contact me regarding developing a green building legal practice. Joshua came up with an innovative program to develop green-building expertise. The clinic is working with a local developer to write contracts and administer the LEED certification process. This is an interesting clinic that I expect to see replicated at other law schools.
  • Monty Lunn launched what is, to my knowledge, the first green building legal conference.  Green Legal Matters will be held April 26-28 in New Orleans -- which conveniently overlaps with Jazz Fest. I won't be able to attend due to another commitment. But many of my friends in the green building industry will be speaking including Shari Shapiro, Timothy Hughes and Chris Hill.
  • I very much wish I could attend Susan Dorn's keynote at the Green Legal Matters conference on April 27. Susan is the United States Green Building Council's General Counsel. I recently spoke to Susan about the legal issues facing the USGBC and the green building industry and I can report that she is in sync with the legal challenges we are facing. Thanks for meeting with me Susan.

Do you have an interesting green building event, idea or publication? Feel free to send it to me at chris@greenbuildinglawupdate.com.

Related Links:

The University Of Illinois College Of Law is Creating Sustainable History! (University of Illinois)

Green Legal Matters Schedule (Green Legal Matters)

What Constitutes a Differing Site Condition?

[I have said many times that the legal principles that will apply to green building projects will be very similar to existing legal principles in the construction law field. On Fridays we will be reviewing legal developments from the construction industry that most likely will be applied to green building projects.]
 
When I prepare construction claims for clients, one of the first steps is to gather the facts and develop potential legal bases for the claims.  There is one legal basis that clients seem to know, and argue for, more than any other:  Differing Site Conditions. 

A Differing Site Condition is essentially an unanticipated physical condition encountered by a contractor at a project site, which requires additional work by the contractor. Most federal contracts contain a Differing-Site-Condition clause.  As described in Foster Constr. C.A. & Williams Bros. Co. v. U.S.:
"The purpose of a [differing site] conditions clause is thus to take at least some of the gamble on subsurface conditions out of bidding.  Bidders need not weigh the cost and ease of making their own borings against the risk of encountering an adverse subsurface, and they need not consider how large a contingency should be added to the bid to cover the risk."
 

The typical example of a Differing Site Condition occurs when boulders or other large objects are unexpectedly found below the surface and require removal prior to construction.  

Contractors often want to argue that a non-physical condition constitutes a Differing Site Condition.  Here are two examples of non-physical conditions that I have seen argued as Differing Site Conditions:
1.  The contractor expected certain labor conditions in the surrounding area.  When he started the project, labor conditions had changed due to a competing project.

2.  The contractor properly relies on site boundaries in preparing its bid.  When the project starts, the site boundaries change.  
Do you think these two scenarios constitute an actionable Differing-Site-Conditions claim? 
 
Photo:  ubac

Update: Energy Department Concerned About Geothermal Earthquake Risk

When you think of green energy projects, what sort of results do you anticipate?  New energy sources?  Reduced energy costs?  Green jobs? 

What about earthquakes?

Geothermal energy, a widely-touted green energy source, involves drilling miles-deep wells into underground reservoirs in order to tap steam and hot water that can be used for energy applications.  I have previously referenced a geothermal energy project that was shut down by the Swiss government for allegedly causing earthquakes in 2006 and 2007. 

Apparently, the potential for earthquakes triggered by geothermal energy projects is also a concern for the U.S. Department of Energy, as detailed in a December 30 DOE letter: 

"The United States Energy Department, concerned about earthquake risk, will impose new safeguards on geothermal energy projects that drill deep into the Earth’s crust.  The new policy is being instituted after a project in California that used the new technology was shut down by technical problems and encountered community opposition, federal documents indicate.

The project, by Seattle-based AltaRock Energy, would have fractured bedrock and extracted heat by digging more than two miles beneath the surface at a spot called the Geysers, about 100 miles north of San Francisco. The company ran into serious problems with its drilling and faced accusations from scientists and local residents that it had not been forthcoming enough about the earthquake risk. AltaRock denied those accusations."

Most striking to me is that on September 11, 2009, the DOE downplayed the potential for earthquakes caused by the California geothermal project: 
"In a second document dated Sept. 11, 2009, but not previously disclosed, the department concluded that earthquakes that would have been set off by the AltaRock project would 'not have a significant impact on the human environment.'”

Just another example of how new, green technologies will result in unintended consequences.  How can you extrapolate this example to the green building industry?

Photo Credit:  peripathetic

Related Links:

Green Energy Project Causes Earthquakes? (GBLU)

Geothermal Basics (DOE)

Geothermal Drilling Safeguards Imposed (NYT)

Update: Precedence Setting LEED CIRs Reconsidered

If you participate on building projects that are seeking LEED certification, this news may come as a relief to you.  According to Marian Keeler of Simon & Associates, the United States Green Building Council (USGBC) is reconsidering its decision to stop making Credit Interpretation Requests (CIRs) public.  

I have previously described a CIR as follows:  
 
"To achieve LEED certification, a project must achieve a certain number of credits.  But the requirements for each credit are often open to interpretation.  To resolve this uncertainty, a technical advisory board evaluates each CIR to determine whether or not a credit should be granted.  Historically, USGBC has published these credit  interpretations to inform other builders and designers in future projects."

In June 2009, I reported that the USGBC had announced that, effective June 26, 2009, a CIR would only be applicable to the project that submitted it.  At the time, I suggested that "[w]ithout public CIRs, architects, engineers and contractors are going to have more trouble interpreting credits and determining strategies that will successfully achieve a LEED credit."

It appears that the USGBC is now reconsidering its decision and plans to implement a new CIR system:

"USGBC is currently developing a new process by which any LEED stakeholder (whether part of a registered project team or not) may submit a request or highly technical inquiry directly to USGBC. Unlike Project CIRs that are only applicable to a specific project, these inquiries will be processed and issued by USGBC and will set precedent across all applicable LEED programs.  Fees and turn-around times associated with submitting these inquiries is to be determined. More information on this process will be made available in the coming weeks."

I will reach out to the USGBC for further information.  Why do you think the USGBC is reconsidering?

Related Links:

Why Do Non-Public CIRs Mean LEEDigation? (GBLU)

CIRs and Precedence Policy (LEEDuser)

Photo credit: eddiewls

What Does Climate Change Disclosure Mean for Green Building?

Did you know your company may have a duty to disclose how climate change may impact your business?

A group of Crowell & Moring attorneys - James Chen, Bryan Brewer and Jessica Hall - recently released a Climate Change Client Alert regarding the issuance of climate disclosure guidance by the Securities and Exchange Commission (SEC).  This alert has important implications for those companies required to make disclosures and may impact the green building industry as well.

"On January 27, 2010, the Securities and Exchange Commission ("SEC") approved, by a slight majority, the issuance of guidance on how existing public company-disclosure requirements may apply to climate change. A pre-publication copy of the guidance was made available on February 2, 2010 (see below). Unlike a law or rule promulgated pursuant to legal authority, the interpretive guidance is not legally binding. It is, nonetheless, significant as the SEC's first express statement regarding how climate change issues may implicate companies' disclosure requirements.

Existing disclosure rules cover a company's risk factors, business description, legal proceedings, and management discussion and analysis. Companies must disclose to investors material information that may impact their business. Materiality is generally determined by reference to the "reasonable investor." The SEC has long acknowledged that environmental factors may trigger disclosure duties under certain circumstances. The issue of climate change was not specifically considered until 2007.

The SEC's interpretive guidance indicates that climate change may trigger existing disclosure requirements for some companies. In assessing whether disclosure is required, companies should consider the following:

  • existing domestic laws and regulations relating to climate change, including the potential impact of pending laws and rules;

  • opportunities and risks arising from legal or technological aspects of climate change, including indirect impacts of regulation like decreased demand for carbon-intensive products;

  • potential positive and negative effects of international legal instruments governing climate change; and

  • actual and potential physical impacts of climate change on business operations.

Thus, under the SEC's guidance, a company may have to consider the materiality and possible disclosure of impacts related to the Environmental Protection Agency's mandatory greenhouse gas reporting rule, promulgated in 2009, as well as other pending Clean Air Act rule-makings on greenhouse gases. Companies may also have to consider the likelihood of enactment and impacts of comprehensive climate change legislation. In addition, companies may have to disclose risks related to the rise in private tort litigation involving greenhouse gas emitters. Finally, if international negotiations lead to a post-Kyoto Protocol climate treaty, companies may have to consider how the treaty would impact their businesses."

I am particularly interested in how "existing domestic laws and regulations relating to climate change" may trigger disclosure rules. For example, in cities like Washington, D.C., Austin, Texas and New York City, municipal governments are attempting to create a market for energy efficient buildings by requiring disclosure of building stock energy usage. If a major, publicly-traded real estate development company owns property with poor energy efficiency in one of these cities, could the developer be required to disclose this information?

Can a Green Schools Program Be Inequitable?

In Ohio, there is LEEDigation brewing.  But it's not the LEEDigaiton that I anticipated.  

The Ohio School Facilities Commission (OSFC) requires that new OSFC-funded schools achieve LEED Silver certification.  The Washington-Nile school district is balking at the additional costs incurred as a result of the LEED certification requirement.  

When a school project is pursuing LEED certification, OSFC provides three percent more funding than the estimated project costs in order to pay for the incremental costs of certification.  According to Washington-Nile Superintedent Patricia Ciraso, 3 percent is insufficient to cover the costs of LEED certification in her school district (red dot in the picture on the left):  

"'It might cover it in Columbus, or Cleveland, where you have people that deal with LEED constantly. These contractors down here, this is new to them and they’re going to have to deal with it. They’re probably going to have to bring in some people, or at least have some people trained,' she said.

To help prove the need for greater LEED funding at smaller, isolated districts, the school has retained an attorney in Columbus, with experience in school projects, to research the equity of LEED funding for schools in Ohio. Ciraso said the outcome of this battle could have local impact on LEED funding for school projects at New Boston and Clay also.

'If you are co-funding these projects and you have said silver is the appropriate LEED certification, why would you not want to fund to that level?' she asked."

I had always assumed LEEDigation would involve post-construction disputes when a project failed to achieve its green building certification.  A pre-construction dispute involving public funding for certification is a new issue, and one that could impact other state green building programs.  

Did you see this coming? 

Related Links: 

LEED Funding for Green School Causes Construction Delay (GBLU)

LEED Funding for Green School Causes Construction Delay

Last Thursday, during a webinar on green building legal issues, I stated the following:

"I really believe schools will be a hotbed for green defect claims, in terms of energy efficiency, and other green building components.  Schools rely on tight budgets. . . .  Be careful what you are promising on these green school projects."

On Friday, I read an article titled "Construction Delayed at West School," which led with the following paragraph:

"Construction is at a stand-still at Washington-Nile School, where issues surrounding state-mandated LEED (Leadership in Energy and Environment Design) elements have placed the new middle school building project over-budget. Now attorneys working for the school are researching the equity of LEED funding for schools in Ohio; the outcome of which could also affect building projects at New Boston and Clay."

I was close.  

In Ohio, the Ohio School Facilities Commission (OSFC), administers the state’s Kindergarten through 12th Grade public school construction program and helps school districts fund, plan, design, and build or renovate schools.  In a previous post, we highlighted the OSFC's green buiding requirement for Ohio schools:

"OSFC Resolution 07-124 . . . mandates that all newly constructed or substantially renovated school buildings that are state funded achieve a minimum of Silver certification in the US Green Building Council's LEED-Schools (Leadership in Energy and Environmental Design) rating system with emphasis in energy conservation."

As highlighted in the article, the OSFC accepted the Washington-Nile School (tiny red dot in the photo to the left) as a special-needs project.  Because of the district’s low wealth base, the OSFC agreed to provide 98 percent of the funding for a new $16 million middle school. The remaining 2 percent (about $320,000) was paid from the school’s General Fund.

By accepting the OSFC funds, the school district is required to build the new Washington-Nile School to LEED Silver certification.  But the bids for the school were over-budget despite numerous changes made to the design:  

"'We knew a little about LEED. We didn’t know much, so they (the OSFC) educated us and they did a very good job. We bought into that and we designed accordingly. We made sure we had some educational LEED credits,' Washington-Nile Superintendent Patricia Ciraso said. She explained that while striving to meet these LEED requirements, the school had to give up other features they had hoped to add. By choosing to cut-back on windows, the school had change its lighting system, which means redesigning the entire electrical system — and what they ended up with still was estimated at least $1.2 million over-budget."

On Friday, we will look at allegations by the Washington-Nile school district that the OSFC is not properly funding the necessary LEED-certification costs.  You will want to check back, as these allegations include a creative legal challenge to the state's funding of green schools, which could have broad implications for other state green building programs. 

Related Links: 

Sensible Interview:  OSFC (GBLU)

Live Webinar (GBLU)

Construction Delayed at West School (Portsmouth Daily Times)

 

Important Revision to the D.C. Green Building Act

In December 2009, an Amendment to the D.C. Green Building Act of 2006 was introduced by the D.C. Council.  Labeled the "Green Building Technical Corrections, Clarification, and Revision Amendment Act of 2009," this Amendment includes many revisions to the original Green Building Act.  One of those revisions involves the "performance bond" requirement:

"'Sec. 6. Bond requirements.'.

(2) Section 6 is amended by striking the phrase 'performance bond' wherever it appears and inserting the word "bond" in its place."

That's it.  This feels anti-climatic.  We have been discussing this same issue since the dawn of Green Building Law Update.  Back on August 15, 2008, one of my very first posts pointed out the performance bond issue.  So what does this fix? 

1.  Replacing "performance bond" with "bond" will eliminate the confusion that was certain to ensue in the construction and surety industry.  Performance bonds guarantee a contractor will building according to the plans and specifications.  Here, a developer has to guarantee that a project will achieve green building certification. 

2.  I still have concerns about the bigger issue of whether these "bonds" will be available.  Bond instruments guaranteeing green building certification simply do not exist in the market.  Maybe a surety will develop these bonds, maybe they will not. 

In the end, I applaud the D.C. City Council for addressing the "performance bond" issue. 

What do you think about this revision?  Disaster averted? 

Related Links:
 

Hitting Reset on the D.C. Green Building Act

Back in April 2009, I took a vow of silence.  I promised to stop writing about the "performance bond" requirement in the D.C. Green Building Act.  I had faith the D.C. Council would address the issue.  Thankfully, it appears our long nightmare may be coming to an end.

Today, I am going to reset the "performance bond" issue (I have not written about it since April 2009!).  On Monday, I will discuss the "Green Building Technical Corrections, Clarification, and Revision Amendment Act of 2009" (pdf) and the proposed revision to the "performance bond" requirement. 

As background, for every green building mandate, you need an enforcement mechanism. The D.C. Green Building Act of 2006 requires that "after January 1, 2012, all new construction of projects 50,000 square feet or greater must comply to the LEED certification level."  Here is how I described the enforcement mechanism in a previous white paper:

"One of the most controversial provisions in the Green Building Act is the performance bond requirement.  After January 1, 2012, an applicant for construction of a privately-owned building must provide a performance bond which is due and payable prior to receipt of a certificate of occupancy.  Thus, after January 1, 2012, if a construction project must meet green requirements in the Green Buildings Act, the 'applicant for construction' must also provide a performance bond guaranteeing satisfaction of the green requirements." 

There are two primary problems with the D.C. Green Building Act "performance bond" requirement. 

1.  "The Act incorrectly uses the term 'performance bond' as the bond described in the Act 'seems to function more in the manner of a license or compliance bond, which typically guarantees compliance with a law or code.' A performance bond typically assures one party that another party will perform the contract in accordance with its terms and conditions."

2.  "Let me make this clear: no bond or insurance instrument has been created that guarantees green certification.  This type of security instrument does not exist.  I have discussed the issue with sureties, surety industry groups, insurance companies and insurance brokers.  None of them know of a security instrument that guarantees green building certification."

So what did the D.C. City Council correct either of these problems?  Check back on Monday as I continue this discussion. 

Related Links:
 
 
Photo:  Henry Stern

Live Webinar (1:00 pm EST): "Green Building Legal Issues on the Horizon"

You can view my webinar "Green Building Legal Issues on the Horizon" live at 1 pm EST or archived on demand.  If you are having trouble, you can also try the BrightTALK website

PLEASE NOTE:  We experienced some technical difficulties at the beginning.  Please fast forward to the 2:10 mark for the beginning of the presentation.  Thanks!

Green Building Law Update Will Do It Live

This week, I am going to be trying something new and exciting here at Green Building Law Update.  On January 28 at 1 pm (eastern), I will be participating in a live webinar hosted by BrightTALK titled "Green Building Legal Issues on the Horizon." 

What makes this webinar truly unique is that you can listen to it (for free) right here at Green Building Law Update.  On Thursday morning, I will put up an additional blog post that will include a live webinar viewer.  Simply log on to www.greenbuildinglawupdate.com on Thursday morning and you should be good to go.  As a backup plan, you can also view the webinar by going to the BrightTALK page.

I am excited about this opportunity because while I have spoken to many audiences on green building legal topics, I have not been able to speak to you you, my faithful blog readers.  My hope is that you will learn four things from the webinar:

  • You should think twice before making green building guarantees
  • Guarantees of green building certification are risky
  • Insurance for green building projects is difficult to obtain; and
  • Energy efficiency is hard to control
What other information can I include in the presentation that would benefit you?  What green building legal questions do you have?  Feel free to ask in the comments below and I will do my best to address your issue. 

Related Links:

BrightTALK: Green Building (BrightTALK)

 

Green Building Regulations To Face Increased Scrutiny

A coalition of forest product companies ("the Coalition") has filed a complaint with the Federal Trade Commission (FTC) regarding, in part, the United States Green Building Council’s preference for Federal Stewardship Council-certified (FSC) wood products. The Coalition has asked the FTC Bureau of Competition to provide guidance to the USGBC and other rating systems regarding the endorsement of product certifications.

If the FTC decides to provide such guidance, the USGBC’s LEED rating system will obviously be affected.  I am particularly interested in the implications of FTC action for green building regulations that have incorporated the LEED rating system.

In its complaint, the Coalition takes a shot across the bow aimed at federal agencies that have adopted the LEED rating system:

“The favoritism shown FSC-certified products by USGBC is inconsistent with the American National Standards Institutes's (“ANSI”) due process requirements and OMB Circular No. A-119, which establishes the principles that voluntary, private sector standards must meet if federal agencies wish to use them, including openness, balance, due process, an appeals process, and consensus.”

In short, the Coalition is arguing that federal agencies are improperly requiring LEED certification for the design and construction of federal buildings. This allegation is not a new one.  Most green building regulations that require LEED certification also permit “an equivalent” certification in order to avoid antitrust issues like the ones raised by the Coalition’s complaint.

But many federal agencies exclusively require LEED certification for federal projects. The most obvious example is the General Services Administration, which builds and maintains a large percentage of federal buildings.  The GSA's website describes its LEED mandate:

“As a means of evaluating and measuring our green building achievements, all GSA new construction projects and substantial renovations must achieve Silver certification through the Leadership in Energy and Environmental Design (LEED®) Green Building Rating System of the U.S. Green Building Council.”

If the FTC were to find that the USGBC’s preference for FSC-certified wood products constitutes anti-competitive behavior, hundreds of green building regulations across the country and in Washington D.C. will have to be re-written.

The implications of the FTC action on the complaint are staggering.

What other implications do you see?

Related Links:

Photo:  Eighty734

Green Building Industry to Face More Scrutiny

The green building industry is entering an interesting period. In 2009, the green building movement was embraced as a solution to economic and environmental problems. "Green jobs" were touted as a way to improve the economy while reducing unemployment. Investment in renewable energy and energy efficiency measures was championed as a way to reduce greenhouse gas emissions and increase energy security.
 
With the nation buying into the green movement, the Obama Administration and Congress were able to pass a $787 billion American Recovery and Reinvestment Act (ARRA) that included at least $25 billion for renewable energy and energy efficiency projects.

Government officials and citizens are going to expect results form the significant investments in the green movement (particularly in an election year). In 2010, the nation will begin to decide if investments in the green building and renewable energy industries were worth it.
 
Back in February 2009, I pointed out the potential issues that may arise when states and local jurisdictions attempt to manage ARRA-funded green building programs.  Stories are beginning to emerge of states mismanaging energy efficiency funds from the ARRA. Federal agencies are expressing confusion with new green mandates. In 2010, states and federal agencies will face pressure to monitor, investigate and audit ARRA green building and renewable energy projects. On Wednesday and Friday, we will look at two states and a federal agency that have been criticized for lack of oversight of ARRA green building programs.

As government entities face pressure to closely monitor ARRA projects, contractors involved in ARRA green building projects must remain diligent to ensure compliance.

Related Links:

The Stimulus: Now for the Hard Part (GBLU)

Uncertainties Plague Geothermal Heat Industry

Geothermal heat pumps continue to gain popularity as an alternative energy source.  This energy technology doesn't come without uncertainties though.  In fact, as ENR recently described it, there are significant problems with the geothermal industry:  "[M]any of these systems are not performing as touted, especially cleverly hyped geothermal heating systems that are plagued with inflated savings claims and deficient designs."

The article goes on to describe three primary problems with the geothermal industry:

  • "Their performance often is only superficially studied by equipment insiders whose main interest is selling more systems. As a result, the construction industry lacks a trusted set of independently audited best practices for design, installation and maintenance. This issue is becoming increasingly important as engineers scale up geothermal systems for larger buildings."
  • "In particular, the coefficient of performance (COP) rating for a heat pump usually does not take into account the efficiency of the entire system. During design and installation, many variables can creep into that equation, such as the amount of electricity needed to pump water through piping loops, heat escaped through poorly built ductwork and seasonal imbalances in how much heat is dumped or pumped out of the ground. These all can compromise the COP and extend the payback time for systems."
     
  • "Industry promoters working for owners, architects, engineers and contractors have done a poor job of educating consumers on the benefits and drawbacks of geothermal HVAC. There are large variations in average ground temperatures by region, but geothermal advocates would have potential customers believe ground temperature is a constant 55°F."
ENR's concerns about geothermal energy go to a larger point: owners and contractors should avoid promises of energy savings.  Unless you are a performance contractor, there are too many variables during operations and maintenance that impact actual energy use. 

What are your experiences with the risks and rewards of geothermal heat pumps?
 
Related Links
 

Green Energy Project Causes Earthquakes?

It's always amazing to me the unexpected consequences that result from apparently benign activities.  As new green building and energy innovations and materials are incorporated into projects, there is always the possibility of an unexpected consequence.  

Take for instance a geothermal energy project in California.  

Geothermal projects involve mile-or-more-deep wells drilled into underground reservoirs to tap steam and very hot water that can be brought to the surface for use in a variety of applications.  The Department of Energy is investing millions in geothermal projects.  But one of the DOE projects was recently halted:  

The project by the company, AltaRock Energy, was the Obama administration’s first major test of geothermal energy as a significant alternative to fossil fuels and the project was being financed with federal Department of Energy money at a site about 100 miles north of San Francisco called the Geysers.

But on Friday, the Energy Department said that AltaRock had given notice this week that “it will not be continuing work at the Geysers” as part of the agency’s geothermal development program.

The timing of the announcement coincides with another project recently shutdown due to earthquake concerns:  

"The project’s apparent collapse comes a day after Swiss government officials permanently shut down a similar project in Basel, because of the damaging earthquakes it produced in 2006 and 2007. . . .  [T]he type of geothermal energy explored in Basel and at the Geysers requires fracturing the bedrock then circulating water through the cracks to produce steam. By its nature, fracturing creates earthquakes, though most of them are small."

This geothermal project highlights the unexpected consequences that can result from new technologies.  As the construction industry pushes forward to locate new sources of renewable energy and energy efficiency savings, contractors must also be mindful of unintended consequences.  
 
Related Links
 
 
 
Photo:  Earthwatcher

Contractors Need Green Building Contracts Too

We previously reviewed a green building contract that can be used to manage the architect-owner relationship. But what about contractors?

As a member of the AGC ConsensusDOCS committee, I had the pleasure of collaborating on the ConsensusDOCS 310 Green Building Addendum, which was recently released:

On Nov. 10, ConsensusDOCS released the construction industry's first and only comprehensive standard contract document addressing the unique risks and responsibilities associated with building green projects -- the ConsensusDOCS 310 Green Building Addendum. The Addendum incorporates contractual best practices to identify the project participants' roles and responsibilities, as well as the implementation and coordination efforts critical to achieving a successful project using green building elements, particularly those seeking third-party green building rating certification. It was drafted to work well not only with the other ConsensusDOCS contract documents, but also with other form contracts.

If you have an opportunity to review or work with ConsensusDOCS 310, I would like to hear your thoughts. Based on conversations with owners, contractors and architects, there seems to be a real need for standardized green building contracts. Simple modifications to your existing contracts are not enough.

What other relationships exist on a green building project that require a contract?

Related Links:

ConsensusDOCS 310 Green Building Addendum (AGC)

What Does A Green Building Contract Look Like (GBLU)

What Does a Green Building Contract Look Like?

In order to manage risk associated with a design and construction project, it is important to draft an appropriate contract. There are a number of standard contracts available for the construction industry. The American Institute of Architects (AIA) publishes the AIA construction contracts to manage the architect-owner relationship. The Association of General Contractors (AGC) has also created ConsensusDOCS contracts that are used between contractors and owners.

With the emergence of green buildings, new risks must be accounted for in contracts. The AIA has released AIA B214 to manage green building risks between an architect and owner:

B214–2007 establishes duties and responsibilities when the owner seeks certification from the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED®).

Among other things, the architect’s services include conducting a pre-design workshop where the LEED rating system will be reviewed and LEED points will be targeted, preparing a LEED Certification Plan, monitoring the LEED Certification process, providing LEED specifications for inclusion in the Contract Documents and preparing a LEED Certification Report detailing the LEED rating the project achieved.

Next time, I will look at a new green building contract that can be used between contractors and owners.

What are your experiences with green building contracts?

Related Links:

AIA - B214 (2007) Standard Form of Architect’s Services: LEED® Certification (AIA)

White House Developing Emissions Reporting for Contractors

On Friday, we discussed Navy contracting requirements for tracking "energy efficiency" and "energy footprints."  When I first learned of these requirements, I was reminded of Executive Order 13514.  We have already discussed Executive Order 13514 in terms of the green building industry, but the Order also contains provisions relating to greenhouse gas emissions. I don't usually include extended regulatory text, but in this case, the regulation emphasizes the Obama Administration's focus on greenhouse gas emissions: 
Sec. 13. Recommendations for Vendor and Contractor
 
Emissions. Within 180 days of the date of this order, the General Services Administration, in coordination with the Department of Defense, the Environmental Protection Agency, and other agencies as appropriate, shall review and provide recommendations to the CEQ Chair and the Administrator of OMB's Office of Federal Procurement Policy regarding the feasibility of working with the Federal vendor and contractor community to provide information that will assist Federal agencies in tracking and reducing scope 3 greenhouse gas emissions related to the supply of products and services to the Government. These recommendations should consider the potential impacts on the procurement process, and the Federal vendor and contractor community including small businesses and other socioeconomic procurement programs. Recommendations should also explore the feasibility of:
 
(a) requiring vendors and contractors to register with a voluntary registry or organization for reporting greenhouse gas
emissions;
 
(b) requiring contractors, as part of a new or revised registration under the Central Contractor Registration or other tracking system, to develop and make available its greenhouse gas inventory and description of efforts to mitigate greenhouse gas emissions;
 
(c) using Federal Government purchasing preferences or other incentives for products manufactured using processes that minimize greenhouse gas emissions; and
 
(d) other options for encouraging sustainable practices and reducing greenhouse gas emissions.
Eventually, the federal procurement process will include measurement of greenhouse gas emissions.  The first step, which is part of Executive Order 13514, is the creation of a voluntary greenhouse gas emissions reporting system for government contractors and vendors. 
 
A contractor's ability to measure and minimize greenhouse gas emissions will become an important factor in winning government contracts.  The creation of such a complicated, new contracting requirement is certain to lead to confusion and new risks for government contractors. 

Has your company considered measuring and reducing greenhouse gas emissions?

Related Links: 

President Obama signs an Executive Order (White House)

Energy Reductions in the Navy (GBLU)

Does Executive Order Signal Shift in Green Building Regulations (GBLU)

 

Green Building Litigation All But Certain

The primary theme of Green Building Law Update is green building litigation will develop.  To date, one of the rare examples of green building litigation is Shaw Development v. Southern Builders, a case that involved a project's failure to achieve LEED certification in a timely matter.  Other examples of green building disputes are sparse.

But I am confident the litigation will develop.  A recent article, "'Green' projects create new exposures", suggests others agree:

“There is certainly going to be litigation coming out soon around (green buildings) and insurance companies are waiting to see” the loss results before developing coverage products, (David) Cohen, [senior product director for commercial insurance at Fireman's Fund Insurance Co. in Novato, Calif.], said.

Fireman's Fund Insurance Co. (FFIC) was the first company in the United States to offer green building commercial insurance in 2006.  The availability of this type of policy further suggests the inevitability of green building litigation.

What factors do you think will eventually result in more green building litigation?

Related Links: 

Shaw Development v. Southern Builders (GBLU)

"Green" Projects Create New Exposures (Business Insurance)

Green Building Law Update Goes South

[Ed. Note: Steve McBrady is your Editor this week]

 

One of the primary focuses here at Green Building Law Update has been the emergence of Green building and sustainable development as an “unstoppable force” in the world of real estate development and construction – as well as the emerging federal, state, and local regulations that accompany this Greenward* move.

 

Lately, with the federal government’s heavy investment in Green building through the American Recovery and Reinvestment Act of 2009 (ARRA), much of our focus has been on how this money is being spent, its potential impact on the economy, and (of great significance to our readers), what exactly various new government regulations mean.  But Green building existed before the ARRA, and it will be a driving force in the American economy long after the stimulus dollars run out.

 

So, allow myself to introduce … myself.  (Credit to Mike Myers for that one).  On November 16-18, Chris and I, along with our colleague Randy Erickson, will be traveling to Orlando, Florida for the Construction Users Roundtable’s Annual Conference, where we will address key Green building issues in both the Public and Private sectors:

 

The American Recovery and Reinvestment Act of 2009 (ARRA) is aggressively expanding federal and state investment in Green construction and renovation projects.  Moreover, an increasing number of state and local laws require private Owners to meet stringent Green building requirements.  In this presentation, Crowell & Moring attorneys will cover the "nuts and bolts" of Green construction in the 21st century, including:

 

·         Green building certification

·         Green building under the American Recovery and Reinvestment Act

·         Key state and local Green building laws

·         Green building risk management

 

CURT Annual Conference Agenda

 

The theme for this year’s conference is “Surviving and Thriving in Today’s Construction Industry.”  Our goal is to discuss critical Green building issues facing Owners and Contractors as they navigate Green building opportunities, risks and regulations on Public and Private construction projects. 

 

What questions would you like to see addressed?

 

*[Ed. Note: to our knowledge, Greenward is not actually a word] 

 

Surf's Up on a Wave of New Green Building Projects

[Ed. Note: Chris could not help sending along one last post before he enjoys some well-deserved R&R on his honeymoon.  Congratulations to Chris and Melissa!  Stay tuned for my guest posts the remainder of the week.  - Steve]

There is a wave of funding for green building and energy efficiency projects on the way. 

The American Recovery and Reinvestment Act has set aside nearly $25 billion for projects that will impact the green building industry.  The General Services Administration received $5.5 billion to create high-performing, sustainable federal buildings.  The Department of Energy received $3 billion to distribute to states under the Energy Efficiency And Conservation Block Grants Program.

But where is this money?  In California, which has been allocated a large amount of green building stimulus money, it has yet to hit the streets:  
 

A preliminary report by the California Recovery Task Force early this month shows that the federal stimulus program has allocated $185.8 million to help the state's low-income households weatherize their homes and $314.5 million for energy-efficiency and conservation programs.
 

But as of Sept. 30, the report said, less than $10 million has been spent, leading to the creation or retention of only 120 or so jobs. The bulk of the funding is expected to start flowing within the next three or four months.

The article also questions whether green building will remain a sustainable industry once the federal projects are completed:
 

"But at a forum on federal stimulus programs last week at the University of California San Diego, builders, union organizers and academics said the real task ahead is to keep the work flowing after the federal funds dry up in a couple years. The government, after all, has been far more willing to engage in energy saving measures than most consumers or businesses have been."   
 

“What it's going to take is a lot of education,” said Devon Hartman, a principal in the HartmanBaldwin construction and design firm in Claremont.
 

There is reason to question this argument.  Prior to the economic turmoil that began in late 2008, there was an obvious shift in market demand for green building, both in residential and commercial.  Investment of federal dollars in the green building industry will only contribute further to this market shift.  As the building industry is better able to demonstrate reduced energy bills from green buildings, market demand will increase further. 
 

Do you think private dollars will invest in green building? 
 

Sustaining Green Tide in Building A Concern (Union-Tribune)

Don't Mess With Nashville Green Builders

[Ed. Note:  I am getting married tomorrow!  As a result, guest editor Steve McBrady will be taking over Green Building Law Update.  I will be back November 2.]

The green building professionals in Nashville, Tennessee are a no-nonsense, dedicated group.  

That's my conclusion after I recently gave a green building legal presentation to the USGBC Middle Tennessee Chapter.  After my presentation was over, I was questioned for 15 minutes on the nuances of the law and green building.  I met some dedicated professionals involved in some incredible green building projects.  For example, did you know there is someone in Nashville who has been involved with LEED certified projects since 2000?  Brian Phelps has been contributing to LEED projects in the Nashville area for years and was able to point out a number of his projects on the Nashville skyline.  

As promised, below is the slideshow I used during the Nashville presentation.  Feel free to ask questions about any of the slides. 

Thanks Nashville!

 

The Year of the Retrofit in New York

The other day, a reporter contacted me regarding my prediction that this is the year of the retrofit. I stood by my prediction, pointing towards stimulus funding that supports retrofits of existing buildings. I wish I had been able to point out the $1 billion lending program in New York to retrofit existing buildings that was just announced:

The Community Preservation Corporation (CPC), a non-profit affordable housing lender, today announced a new public/private partnership to provide $1 billion in construction and mortgage loans to multifamily housing owners for energy efficient upgrades and property retrofits. CPC announced the program together with government chartered mortgage investor Freddie Mac, City and State public employee pension funds, several private financial institutions with Deutsche Bank acting as agent bank, State and City government agencies and utility companies.

I am particularly interested in the fact that this fund was established as a public-private partnership (PPP). PPP's are the wave of the future (PDF) of the construction industry:

PPPs are organizational structures by which the private sector finances, builds, rehabilitates, maintains, and/or operates specific public sector activities in exchange for a contractually specified stream of future returns.

The CPC Program is a perfect example of a PPP. Both public and private entities have come together to collectively provide financing opportunities for a particular sector:

The $1 billion includes $500 million available from Freddie Mac, $300 million from the New York State and New York City public employee pension funds, $150 million from private lenders -- with initial investments of $15 million from Deutsche Bank, $10 million from HSBC, plus additional investments from other major institutions, including up to $10 million from Morgan Stanley -- plus $50 million from CPC participating lending institutions. The State of New York Mortgage Agency (SONYMA) is providing critical mortgage insurance for the pension funds, and the New York City Department of Housing Preservation and Development will also be supporting the initiative through its Participation Loan Program (PLP).

Supporters of the CPC Program hope similar programs are created in other cities. Based on the strong interest in improving energy efficiency and the tight credit market, mimicking the CPC program will be an attractive option for other cities.

Do you think this type of program can work? 

Photo:  serdir

Can Green Buildings Cause Sick Building Syndrome?

Down in Los Altos, California, a green building controversy is brewing. Linda Kincaid, industrial hygienist, has made some serious accusations about high levels of formaldehyde in certified green homes. On September 15, Kincaid, along with Richard Calhoun, held a press conference to discuss her findings. I am particularly interested in Calhoun's reference to "sick buildings" during the press conference:

Calhoun pointed out that commercial buildings were sealed too tightly after the energy crisis of the 1970s. Sick buildings were the result.

Calhoun stated that recent building practices
reduce ventilation in homes to the point that people become ill. There is not adequate fresh air to dilute formaldehyde emitted from building materials and furniture. “History is repeating itself,” said Calhoun.

Calhoun himself is a realtor in California. If he has been a realtor for a number of years, he would likely have experienced the previous sick building crisis that he references. So what is this sick building syndrome that occurred in the 1970s?

Much of the history of sick building syndrome can be traced to the energy crisis of the 1970s. Before the mid-1970s, most commercial buildings had only one way of regulating the volume of air transmitted to the occupants, namely the windows which were opened or shut as the occupant desired, while homes had fairly significant airflow even with all doors and windows shut. Energy conservation efforts undertaken following the 1973 OPEC embargo changed all this. Voluntary and involuntary energy consumption reduction efforts required the reduction of heat loss or gain through the exterior of buildings and a reduction in the supply of outside air quantities into buildings. Buildings were made "tight" and commercial buildings became solely dependent upon mechanical ventilation to supply heating, cooling, and humidity. Windows were sealed shut. While many homes did not receive the benefit of such elaborate mechanical ventilation systems, they were nevertheless sealed and insulated.

This is where I am hoping I can tap the immense knowledge of all the readers of this blog. Tell me about sick building syndrome. Do you see the potential for another round of sick building syndrome from the new wave of green buildings? What do you think of Kincaid and Calhoun's findings?

You can email me at
ccheatham@crowell.com or post a comment below. If I get some great responses, I will feature them in a follow up post.

Related Links

More on formaldehyde allegations (Examiner)

Sick Building Syndrome: A potpourri analysis (bnet)

Photo:  timlovesbrian

Allegations Emerge of High Formaldehyde Levels in Green Buildings

When I have previously speculated as to green building lawsuits, I never imagined that an industrial hygienist would play a significant role.

Industrial hygienists are scientists and engineers who study health and safety of people in the workplace and the community. Linda Kincaid is an industrial hygienist in California. She is also a citizen-reporter for the San Jose Environmental Health Examiner. Turns out, Kincaid has recently been testing Los Altos homes for formaldehyde. Kincaid alleges that Los Altos homes are emitting more formaldehyde and that a green building rating requirement may be the culprit:

[According to Kincaid], of homes with more than 100 ppb formaldehyde, nine out of eleven were in Los Altos. Of homes with more than 120 ppb formaldehyde, three out of four were in Los Altos. Over half of the homes tested in Los Altos had more formaldehyde than the 77 ppb average in the Katrina FEMA trailers.

Initially, we could not understand why homes in Los Altos were different from homes in nearby communities. Construction practices and construction materials should be similar throughout the county. The difference, [according to Kincaid,] was a green building ordinance passed by the City of Los Altos in late 2007. Beginning in January 2008, all new homes in Los Altos were required meet the criteria for GreenPoint Rated.

Kincaid's accusation is a big one. She is alleging that homes that are certified under the GreenPoint Rated system, which is mandated by the City of Los Altos, have higher levels of formaldehyde.

Kincaid's first article of September 8 drew a swift response. The
Formaldehyde Council, Inc. published a scathing critique of Kincaid's analysis, as did Build it Green, publishers of the GreenPoint Rated certification system. From the Build it Green website:

Build It Green found the information in the articles quite inflammatory and simplistic, with an elementary perspective on the realities of any green building rating system and the US construction marketplace. Ms. Kincaid also severely misrepresents the standards and intent of California’s regulatory safeguards in place to help protect homeowners from actual risks of formaldehyde offgassing. Ms. Kincaid’s testing methodology is highly questionable, her conclusions overly simplistic and spurious. Her articles do the opposite of supporting the need for good comprehensive information regarding the realistic dynamics occurring in today’s homes.

There is, of course, more to the story, which we will discuss on Friday. If residents were hypothetically getting sick from formaldehyde in green certified homes, could a green building rating system be responsible? Could a city or county, which mandated the green building certification, be responsible? Architects and contractors who built the homes also have to be concerned about liability implications.

What is your take?

Related Links: 

What is an Industrial Hygienist?  (AIHA)

Elevated formaldehyde in new Los Altos Homes (Examiner)

FCI Reponds to Linda Kincaid Articles (FCI Blog)

Build It Green Responds to Recent Articles by Linda Kincaid (Build It Green)

Photo:  timlovesbrian

Green Building Issues I Am Thinking About

Tomorrow I will be in Nashville, Tennessee to talk to the Middle Tennessee Chapter of the United States Green Building Council (USGBC) about green building law.  It is great news that the green building industry and the people who are involved in green building projects on a daily basis are so interested in green building law. 

As most lawyers who have written or discussed green building law probably understand, I am going to be walking a fine line.  On the one hand, the industry is growing and people are incredibly protective of the certification systems, like LEED.  On the other hand, the industry and its rating systems are not perfect and are likely to contribute to problems and disputes. 

Thankfully, I don't have to discuss the merits of the green building rating systems.  Instead, I will be discussing some of the legal implications, risks and liabilities that may arise from green building certification.  Here are some highlights:

  • Green building certification guarantees are risky.  I will discuss Shaw Development v. Southern Builders and then highlight the LEED guarantee being provided by ACE. 
  • Owners, architects and contractors should confirm that compliance with green building regulations is possible.  I will use the Washington D.C. Green Building Act and the Vancouver green roof ordinance as examples.
  • Green building risks are the real hidden risks.  I am particularly excited to discuss this topic because there is some breaking news on this front.  Check back on Wednesday for more on that story.

Notice I never once blame the green building rating systems.  The parties, projects and contracts that rely on the green building rating systems create the risk.  Sometime next week I will put up my presentation and you can see what I mean. 



Until then, what do you think?  What future green building risks are you focused on? 

A Recipe for Green Building Litigation

The American Recovery and Reinvestment Act (ARRA) projects have resulted in extremely low bids.  These low bids could be the result of improved efficiency in the construction industry; or the low bids could be the result of cut throat competition.  
 
Simultaneously, the ARRA includes $250 million to investigate (PDF) and audit ARRA projects.  These investigations and audits will most likely occur when contractors make claims for modifications and change orders. 
 
This is a recipe for litigation.  And with $25 billion in ARRA funds going towards green building projects, the stage is set for green building litigation. 

Colleague Steve McBrady recently explained how the federal government will use ARRA funds to investigate contractors:  

“These days, there are more companies competing for comparatively fewer contracts, and that means contractors are facing downward pressure on their bids,” McBrady said. “The key for contractors is that it is OK to be competitive, but that bids should accurately reflect the cost to execute the work. Government officials are going to be on the lookout for contractors who make false claims, such as inflating costs for work conducted under change orders.”

Another colleague, George Ruttinger, recently highlighted the various agencies that will receive the $250 million (PDF) set aside for audits and investigations of ARRA projects.  The cast of characters that will be involved in ARRA investigations is long:
  • GAO
  • Agency IGs
  • RAT Board
  • National Procurement Fraud Task Force
  • Congress
  • DOJ Antitrust Division 
  • State and local auditors
  • Whistleblowers
  • The Public 
If you are concerned about the implications of ARRA investigations, I suggest you review the presentation Rewards, Rules and Risks of Doing Stimulus Business -- An Introduction to the American Recovery and Reinvestment Act of 2009: Implications for Construction Contractors.  You can learn more about the funding and players involved with ARRA investigations and, most importantly, what you need to do to remain in compliance.
 
Related Links
 
 
 
 

Photo:  zenosparadox

Have You Ever Wanted To See A Green Roof Fire?

In light of our discussions regarding green roof fires and insurance, I thought you might like to see an actual green roof fire: 
 
 
Are you convinced?  

Related Links: 

LiveRoof:  Green Roof Fire Test (YouTube)

Green Roof posts (GBLU)

New York Times, USGBC Address LEED Performance Gap

You may have recently read the New York Times article about the gap between LEED building designs and actual energy performance.  If not, I would recommend reading the article.  You may have also noticed a reference to "construction lawyers": 

"Already, some construction lawyers have said that owners might face additional risk of lawsuits if buildings are found to under-perform."

In May 2009, I spoke with Ms. Navarro about legal issues that could arise from under-performing green buildings.  I told her that under-performing green buildings might result in unhappy owners when energy performance promises were not met.  Even worse, owners might interpret a green building energy performance design as a promise and be disappointed when actual performance does not match.  Finally, I pointed Ms. Navarro to Malcolm Lewis of CTG Energetics, who actually corrects energy performance gaps that occur in new buildings. 

A lot has happened since my conversation with Ms. Navarro.  The USGBC has taken big steps to address the energy performance gap, which the article covers.  Remember when we discussed the USGBC's new requirement for reporting of energy data from LEED buildings?  Remember how the USGBC threatened to de-certify buildings that do not report energy savings?  These actions mean the USGBC is addressing the energy performance gap head on. 

Want more proof of how seriously the USGBC is taking this issue?  This is from a June 2009 press release from the USGBC:

The U.S. Green Building Council announced this week that Christopher Pyke, Ph. D. has been appointed Research Director. Dr. Pyke joins USGBC from CTG Energetics in Irvine, Calif., where he was National Director of Climate Change Services.   He brings a strong background of leadership in green building research to USGBC, underscoring its commitment to raising the bar on research related to green building science and technology, including the performance of LEED-certified buildings. This research will be vital to the ongoing development of the LEED green building certification program.

CTG Energetics is one of the leading building energy performance companies.  In hiring Dr. Pyke, the USGBC is investing significant resources into researching energy performance. 

Of course, this is all old news.  Friday we will discuss new information revealed by the USGBC's Scot Horst that has enormous ramifications for LEED.

Photo:  Geoff Livingston

Links: 

Some Buildings Not Living Up to Green Label (NYT)

Malcolm Lewis (CTG)

How I Learned to Stop Worrying and Love LEED De-Certificaiton (GBLU)

This Post is Really Important and Is Not For the Faint of Heart (GBLU)

Green Building Law Update Gets a New Home

Today, I am starting work at a new law firm: Crowell & Moring.  I am excited and I think you will see why with a single story. 

My last day at my previous law firm was August 19.  What did I do on my first day off?  Sadly, I wrote blog posts.  I have to keep all of you happy!  As I was reviewing clipped articles for story ideas, I came across the following: 

Green Building Construction: Rewards, Rules and Risks

Increasing public awareness and government attention has jumpstarted market demand for environmentally-friendly or “green” building designs, construction practices and final products.  Green building construction is the wave of the future and is inevitable for any company constructing in America.  However, the possibility for liability is huge, which makes it vitally important to think-out projects from contracting, through construction, until the desired certification level has been achieved.  This session will inform contractors and owners of the best way to situate themselves now to mitigate the inevitable litigation fall-out.

Moderator:

Randy Erickson, Administrative Partner and Construction Practice Group Co-Chair, Crowell & Moring LLP

Panelists:
Deborah Arbabi, Counsel,  Crowell & Moring LLP 
Rosemary Carson, Associate, Crowell & Moring  LLP 
Bernadette Stafford, Associate, Crowell & Moring LLP

Sponsor: Crowell & Moring LLP

Incredible!  My first day off, and I am already reading about my new firm's involvement with green building law.  Fantastic. 

If you are going to be at the Construction Superconference in December, I would highly recommend dropping in on this session.  Say hello to my firm's attorneys.  We would love to hear from you.  I would love to hear from you.  In fact, here is my new contact information:

Chris Cheatham
Crowell & Moring
1001 Pennsylvania Avenue
Washington, D.C.  20004
P - 202.624.2717
ccheatham@crowell.com

Photo: Merrick Brown

You Made Me . . . Promises Promises

[I am on vacation this week in Phoenix and then Kansas City so I bring you guest posts and interviews!  I met each of the guest authors or interviewees somewhere along the way and asked them to contribute. 

When I was in New Orleans for the ABA Forum on Construction event, I met up with former collegue Asha Echeverria, a fellow construction attorney.  Asha told me all about green building events in Maine and I asked her to write a guest post.  I hope you enjoy!]

By Asha Echeverria

Greetings from the Vacationland State of Maine!  With the recent certification of the “first Platinum-certified LEED supermarket in the world” built in Augusta, Maine by Hannaford Supermarkets and the first LEED accredited newly constructed ice arena constructed at Bowdoin College in Brunswick, Maine, I have begun to wonder what would have happened if these celebrated and long awaited projects had failed to achieve LEED certification.  These ambitious projects were billed as “seeking LEED certification” long before they achieved LEED certification and though as a lawyer I know the word “seeking” makes all the difference in that claim, such advertisement raises some interesting issues, both legal and otherwise.

First, what, if any, are the legal consequences to an owner if a building fails to receive the desired level of certification from the USGBC?  For many owners, there may be little, if any, legal repercussions, but the failure to “live up to the hype” could result in financial losses, loss of good will, and other intangible losses.  Failure to achieve certification may result in lost advertising costs, a damaged public image, and a lost opportunity to capitalize on public interest in all things Green.  Though Hannaford seems to have accepted that the individual store in Augusta will not be profitable due to high investment costs, the supermarket chain does expect some return through increased good will at that store and at other Hannafords around the Northeast.   

Second, what are the consequences to the construction-design team?  The answer to this question, as to many questions in the construction industry, is “What do the contracts say?”  Unfortunately, we usually never know what construction contracts say unless litigation ensues, but we can discuss some of the issues surrounding the theoretical negotiation, content, and ultimate effects of these contracts.  First, do the contracts allocate the risk of achieving certification to the construction-design team or do the contracts simply indicate that the building was “designed” to achieve LEED status?  The former protects the owner’s interests discussed above but places the construction-design team in a difficult position to price or insure against a risk that requires the coordinated effort of the entire construction-design team and, even scarier, is predominantly controlled by a third-party, the USGBC.  The latter option, just indicating the project is “designed” for certification, places the project on the wrong side of the lessons learned from the Captain’s Galley litigation (See Jan. 14, 2009 Post Shaw Development v. Southern Builders case).

Continue Reading...

Electrical Contractor Recognizes Green Building Impact

[I am on vacation this week in Phoenix and then Kansas City so I bring you guest posts and interviews!  I met each of the guest authors or interviewees somewhere along the way and asked them to contribute. 

Ben Shultz works at Shultz Brothers Electric Company, an electrical contractor in Kansas City.  I also went to high school with Ben and I beat him every year in fantasy football.  So when he expressed interest in taking the LEED AP exam, I was intrigued.  The following is an interview I did in June with Ben regarding green building.  Hope you enjoy.
]

1.  Your company is an electrical subcontractor and you just became a LEED AP.  How do you see green building and LEED certification impacting your business?

There are significant benefits in having a LEED AP electrical contractor involved in all phases of a construction project, but the greatest contributions would be on a design/build project and in the design and budgeting phases of a plan/spec project.  In those specific situations our expertise, understanding and application of the LEED rating system into a construction project would be of significant value to all parties involved in a green building project.  A few of our customers have already noticed this and have been reaching out to us for thoughts and ideas on upcoming green projects.  We anticipate this trend to grow as we are confident that owners and general contractors will see the value in having a LEED AP electrical contractor on their project. 

2.  What's the Kansas City construction market like these days?  Are you seeing more green building projects?

Right now it’s a tough market; bid lists are long and projects are going for less than we’ve seen in the past.  There is still plenty of good work, and we’re encouraged about what we see ahead, but there’s no question it has tightened up.
We have been seeing more green projects, which is encouraging to us because of the long term benefits of having a LEED AP as a resource.  Since there is a small premium to pay for a green building, as the economy turns around we expect to see more in the future.
 
3.  As a subcontractor, how would you manage guarantees of LEED certification made to the owner?

That would most likely be determined on a project by project basis.  It would depend on our level of involvement and at what stages of the project, what is being asked and expected of us, and what we have committed.  Since each trade contributes to certain LEED points, you could only be held accountable for those that you have an influence over and are identified as anticipated points.  As there are multiple players involved at multiple stages of a project, this is a gray area that could be a potential issue if not identified and addressed early on.

Why Energy Ace's LEED Guarantee is Brilliant

When I first read about Energy Ace's LEED certification guarantee, I thought it was nuts.

Then I read a Co-Star article and realized Energy Ace's guarantee was brilliant.   

When I read a green building regulation, I always look at the enforcement mechanism.  And when I look at a green building contract, I always focus on the potential damages.  Energy Ace's LEED certification guarantee is brilliant because it limits potential damages if certification is not achieved:

"If a project misses its LEED target level (like Silver or Gold) or fails to earn certification altogether, Energy Ace would refund its LEED administration fee, which is between 30 percent and 45 percent of its total fees, Robertson said.

Simply brilliant.  Energy Ace provides a LEED certification guarantee that reassures owners while simultaneously limiting Energy Ace's potential damages. 

The potential damages stemming from a project's LEED certification failure are much greater than the limit described by Energy Ace.  For example, in Shaw Development v. Southern Builders, the owner sued for $635,000 when the project failed to achieve certification by a certain time.  I have never heard of a triple digit LEED administration fee. 

Brilliant, right? 

By the way, I can help you write a similar contract...

Guaranteeing LEED Certification (CoStar)
Southern Builders v. Shaw Development: Green Building Damages (GBLU)

Photo: ejpphoto

How to Make a Green Building Attorney Queasy

Reminder:  Don't forget to register for Green Building Law Update's Birthday Happy Hour this Thursday! 

Energy Ace Inc., an Atlanta-based sustainability consulting firm, has publicly announced it will guarantee LEED certification for its projects.  Of course, there are limitations to the guarantee:  

"Energy Ace is guaranteeing LEED™ certification on projects where the firm is able to oversee LEED™ administration, Fundamental Commissioning and Energy Modeling, and where the project team is committed to LEED success."

Let's go through those conditions one at a time:  

1.  "The firm is able to ovesee LEED administration"

Since Energy Ace is a LEED consulting firm, I assume "LEED administration" means overseeing LEED certification paperwork.  Energy Ace doesn't appear to serve any design or construction role.  Remember, important decisions are made at both the design and construction stages that impact achieving LEED certification.  How can Energy Ace be comfortable that LEED administration is enough? 

2.  "The firm is able to ... oversee Fundamental Commissioning and Energy Modeling."  

This one makes sense.  Commissioning and modeling are key components of buildings that eventually achieve LEED certification.  

3.  "The project team is committed to LEED success."  
As a construction attorney, this sentence makes my stomach roll.  Please, seriously, someone explain this to me.  How do you define "committed to LEED success"?

Despite all of this, Energy Ace knows what they are doing.  Check back on Friday and I will explain why.     

Links: 

Energy Ace Inc. to Offer the Industry’s First Guarantee for LEED

Photo:  misterbisson

Can You Guarantee LEED Certification?

Reminder:  Don't forget to register for Green Building Law Update's Birthday Happy Hour this Thursday!  

This week, we are going to be looking at an issue near and dear to me: guarantees of LEED certification.  Two publications from last week made clear to me the wide variety of views on the issue:

(1) Washington Business Journal's On Site, "Hot Potato" by Vandana Sinha (print only):

For the most part, these players have come together time and again to score a LEED designation and plaque.  But what happens when one of the parties comes up short, and the project misses its LEED goal?  Who's at fault?
...

Green building mandates make the question even more important. . . . "As more LEED mandates come out that require certification, this becomes a bigger deal," says Cheatham, a LEED-accredited D.C. construction attorney with Watt, Tieder, Hoffar & Fitzgerald LLP, where his primary job is to worry about risks associated with green building and things like the D.C. performance bond.  "That's actual cost.  That's money.  The owner will recognize that risk and more likely want to hold somebody accountable at the end."

(2)  CoStar, "Guaranteeing LEED Certification" by Andrew C. Burr:  

Energy Ace Inc., an Atlanta-based energy services and LEED consulting firm headed by Wayne Robertson, is offering what it calls the industry's first LEED certification guarantee.

At a time when many cities and states have begun mandating LEED-certified buildings, “We can offer clients a certainty that their project is going to be certified and remove that anxiety,” Robertson said.

...

“One of the senior architects was saying that these mandates are putting us in a position to offer a guarantee, and we can’t do that,” Robertson said. “And I’m thinking, yes we can.”

Who is right?  Is my concern about LEED guarantees warranted?  Or are companies like Energy Ace Inc. able to avoid issues surrounding LEED guarantees?  Are we both right?  

Photo: Wade Roush

A Green Building Holy Grail: LEED Certification Insurance

Over the past week, we have been discussing AIG's .  I had speculated that this insurance might cover bad press resulting from allegations of greenwashing

Turns out, AIG's insurance product covers more than just bad press. 

Mark Rabkin, my green building insurance guru, located a copy (PDF) of the AIGRMGreen Reputation Coverage.  From my reading of the policy, it would actually cover a green building project that failed to achieve LEED certification.  Come along with me as we read an insurance policy.  Don't worry, I have only picked out a couple of sections:



So what is considered an "adverse green claim"? 



I have been clamoring for this type of insurance policy for awhile.  I thought it would take much longer to create.  This is an important first step to properly insuring owners, contractors and architects involved with projects seeking LEED certification. 

We will definitely be discussing this policy in more detail.  Take a look at the policy (PDF) if you get a moment.  What do you think? 

The Value of Greenwashing Insurance

When I read about the AIGRMGreen Reputation Coverage, which covers bad press for green building projects, I immediately thought of allegations of greenwashing. From wikipedia:

Greenwash (a portmanteau of green and whitewash) is a term used to describe the practice of companies disingenuously spinning their products and policies as environmentally friendly, such as by presenting cost cuts as reductions in use of resources. It is a deceptive use of green PR or green marketing.

One particular type of greenwashing involves projects seeking or building to LEED standards. A recent Grist article detailed one instance of alleged greenwashing through the use of LEED:

Take, for instance, the highly controversial parking garage plopped in the middle of Atlanta’s Piedmont Park. Conceived and championed by the Piedmont Park Conservancy and the Atlanta Botanical Garden as a way to raise funds and provide parking space for folks attending the park’s special events (like the upcoming “Green Concert” starring Sir Paul McCartney), this “built to LEED standards” structure has been largely derided by neighborhood groups, including Friends of Piedmont Park (FOPP), as being a decidedly improper use of park space.

“We’re upset about the conversion of more public green space to cement and concrete,” says Jack White, a FOPP board member.

Grist is a very popular environmental website. After this story ran, other websites then picked up the story, resulting in substantial negative publicity for this construction project.

Is this the type of scenario that would be covered by the AIGRM Reputation Coverage? If the Piedmont Park had this coverage, would the Grist article represent a reasonable claim under the policy? And again, how would you measure the associated damages?

What's A Green Building Reputation Worth?

How did we all miss this?  While AIG may have had its problems recently, it certainly has created an innovative green building insurance product

The company says the casualty coverage for property owners and managers of green buildings consists of two coverages, AIGRMGreen Reputation Coverage and AIGRMGreen Indoor Environment Coverage.

The reputation coverage provides up to $50,000 in coverage, per occurrence, when a green building experiences adverse publicity. It also provides funds to employ crisis management specialists to manage adverse publicity; guide and counsel key company personnel; and provide other services to assist in restoring a company’s reputation.

Did you know you can get insurance to cover you if your green building project goes awry?  Obviously, I would have to read the exclusions (I haven't), but theoretically I could envision that the AIGRMGreen Reputation Coverage would cover your project if it failed to achieve LEED certification. 

In order to offer particular coverage, an insurance company has to be able to measure the risks and potential damages.  How do you measure the damages from bad publicity resulting from a green building project?

Any AIG readers out there?  I would love to talk to you about this coverage! 

Photo:  happymichaelchung

GSA Stimulus Bids Far Lower Than Expected

I have previously speculated that stimulus green building projects will be at risk of underbidding.  Now we have real evidence.  Remember the $5.5 billion that the General Services Administration received from the stimulus to fund green building construction and retrofits?

"Bids came in far lower than we expected, but the upside is that because of that, we have been able to fund more projects," said Paul Prouty, acting administrator for the General Services Administration.

You may recall that the GSA requires that all new construction projects achieve LEED certification and prefers that its projects achieve LEED Silver certification.  With the fierce competition for GSA projects, you can bet that the winning bids will include LEED Silver certification promises. 

Underbidding these GSA projects with promises of LEED certification is bound to lead to problems.  Underbidding makes it more difficult to deal with changes to the design and construction.  Underbidding makes it more difficult for contractors to deal with changes in design and construction plans:

[Paul Shaughnessy, president of BSI Constructors in St. Louis] warned that some contractors are bidding so low they could find themselves unable to cover even the slightest unexpected construction costs.

"The risky side is you're seeing some very thinly capitalized companies making low bids out of desperation," he said. "Their bids are so thin that should something go wrong, they would have very little capital to fix things."

Simply put, the stage is set for LEEDigation.   

Photo:  Our Hero

Would the Founding Fathers Have Supported LEED Mandates?*

You may be relieved to learn that I am temporarily done discussing LEED de-certification.  The USGBC will be releasing an addenda to the Minimum Project Requirements, at which time we will discuss this issue anew.  Until then, lets move on...to another LEED legal discussion. 

One green building legal development that I, and others, have been concerned about is the inclusion of LEED into government regulations, particularly when applied to private projects.  Is it constitutional to require private parties to comply with a third party rating system, namely the USGBC's LEED rating system?  What other legal issues arise from LEED mandates? 

Brad N. Mondschein's green energy blog raised an interesting case study regarding Connecticut's recently passed LEED mandate.  Under the regulation, the State Building Inspector is required to revise the State Building Code to incorporate LEED standards. 

Turns out, the State Building Inspector is very concerned about revising the State Building Code to incorporate LEED:

The state Department of Public Safety is still trying to write building-code language that reflects the new requirements for commercial projects.

“We don’t have the framework in place to implement it properly,” said Lisa R. Humble, the state building inspector.

After the law was passed, the State Building Inspector asked for an opinion from the Attorney General regarding the legality of the mandate.   

Andrew Falk did a great job finding a copy of the Attorney General's informal opinion letter (PDF) to the State Building Inspector.  From Janet Ainsworth from the Connecticut Department of Public Safety: 

The attached is the informal advice (PDF) received from the Office of the Attorney General. The AG opinion does not address the constitutionality of the legislation.  Rather, it discusses whether the statutory provisions may be enforced in the absence of applicable language in the State Building Code.  The Department of Public Safety is engaged in the development of the applicable language to be added to the State Building Code.  At this time, I am unable to estimate when the amendment to the State Building Code to address the green building requirements of the Connecticut General Statutes will be enacted.

Check out the letter (PDF) as we will be discussing it in future posts.  What's your take on the letter?

*Turns out, the Attorney General letter does not address constitutionality of LEED mandates, as originally thought.  We will save this issue for another day. 

LEED De-Certification Raises Insurance Concerns

[Today, I am bringing you a guest post from Mark Rabkin.  I have been on Mark for awhile to write a guest post.  He is doing a tremendous job looking at the insurance and surety concerns related to green building.  Back when I was looking at alternatives for the D.C. Green Building Act bond requirement, I leaned on Rabkin's knowledge of the surety industry.  You may recognize Rabkin's post, which highlights surtey and insurance implications from LEED de-certification, because it was originally a comment last Friday.  Check out other posts from Rabkin over at Konstructr.com.]

Ok, time for me to finally chime in, here. As you attorneys begin incorporating new contractual requirements of energy performance to address LEED 2009's Minimum Project Requirements, please make sure to keep in mind that reporting the usage of natural resources and the subsequent efficiencies create unique risks and liabilities that my (insurance) community has yet to address.

As I have mentioned on numerous occasions, surety providers of performance bonds are underwriters based on the assumption of no losses. Should a contract contain language guaranteeing energy or natural resource performance/efficiency, the surety will exclude that language from their performance bond. In the event that a building fails to perform to a specified level of resource efficiency, should the surety be required to compensate the owner to rebuild the structure? That is not what they are in business to do and will not bond contracts guaranteeing efficiency and performance specifications.

The next question is if there is a situation in which a building is de-certified for either failure to report usage data or lackluster performance (should the program requirements change), than is their a potential for liability by a third party to the operation and maintenance of the building and has the owner incurred a financial injury due to de-certification. The plaintiffs will most likely argue that in fact, the building has lost value, but commercial general liability may not deem this as an occurrence caused by the negligence of their insured. Many professional liability contracts contain exclusions pertaining to guarantees and warranties, so who will provide the defense, what are the damages and what will the plaintiffs argue as their incurred damages?

The point is that we need to be proactive as our contractors enter the realm of performance contracting and they need to be clear as to how their liability insurance will and WILL NOT respond. Guarantees of building energy performance are not new, but they are UN-insurable. If you as a contractor or architect make these claims, you will be ON YOUR OWN if the building fails to meet the owners expectations.

 

How I Learned to Stop Worrying and Love LEED De-Certification

Love might be too strong of a word but you get the point.  The idea of LEED de-certification has touched off a firestorm of comments, some in support and others in objection.  I think a follow up post is warranted. 

First, I want to clarify one important piece of information as I noticed some were heading down the wrong path.  The LEED 2009 Minimum Project Requirements (MPR) require, among other things, that projects report energy performance data.  If projects do not report energy data, then LEED certification may be revoked (i.e. de-certification).  The USGBC has not stated that LEED certification will be revoked for poor energy performance itself.  Go take a look at the USGBC's MPR webpage if you get a moment.

Furthermore, the USGBC's decision to require energy reporting and threaten LEED de-certification makes sense.  Why?

The number of people complaining about LEED certified projects that were not reporting energy performance reductions was growing everyday.  Ever heard of Henry Gifford?  He actually engaged in an open debate with the USGBC in March 2009 about the merits of LEED certification.  This was not good press.  This was  not a good development for the USGBC.  

In response, the USGBC took a dramatic step to fix the problem.  The USGBC has taken what I think is only the first step to ensure improved energy performance.  Additionally, the USGBC used the only "stick" (i.e. enforcement mechanism) it had available:  LEED de-certification. 

On Wednesday, there was a great piece in ENR regarding the LEED energy reporting and de-certification.  Both an American Institute of Architects representative and a Building Owners and Managers Association representative came out in favor of the reporting requirements.  Of course, there was some criticism in the ENR article regarding LEED de-certification: 

The “bottom line” is, these conditions “may end up doing more harm than good for the future vitality” of LEED, says attorney Edward B. Gentilcore, a partner of Duane Morris LLP, Pittsburgh. “This would be a significant loss in light of the accomplishments to date,” he adds.

Mr. Gentilcore is a fellow construction attorney.  Us attorneys are going to be worried about any new requirement that creates additional risk and liability.  That is why we are here.  We are here to worry about your risks and liability.

The moral of the story?  As LEED 2009 changes are implemented, your contracts need to change as well.  Let us do the worrying for you.

Photo:  JonBen

This Post is Really Important and Is Not for the Faint of Heart

Disclaimer:  If you are sensitive to or frightened by new risks and liabilities in the green building industry, please skip this post.

On Monday, I highlighted the USGBC's decision to create requirements to ensure a building's performance matches modeled energy savings.  I finished the post by asking, what happens to projects that do not comply? 

Okay, brace yourself

NOTE: CERTIFICATION MAY BE REVOKED FROM ANY LEED PROJECT UPON GAINING KNOWLEDGE OF NON-COMPLIANCE WITH ANY APPLICABLE MPR.  IF SUCH A CIRCUMSTANCE OCCURS, REGISTRATION AND/OR CERTIFICATION FEES WILL NOT BE REFUNDED. 

It is time to introduce a new word into your green building vocabulary:  de-certification. 

Everytime I start thinking about the implications from de-certification, my head starts spinning and I have to sit down. 

It just happened again. 

I have definitely not uncovered all of the potential issues, but here are three that immediately jump to mind:

1.  De-certification makes regulations tied to LEED certification very difficult to enforce.  What does a jurisdiction do if a project is de-certified?

2.  Insurers and sureties are going to be extremely concerned about coverage issues after design and construction work is complete.  Could an architect or contractor remain on the hook for potential de-certification long after a project has been completed? 

3.  For you owners out there, the commitment to provide energy data must carry forward if a building or space changes ownership or lessee.  How in the world do you write this into a contract? 

The room is starting to spin again.  Please elaborate on any additional risks and liabilities implicated by de-certification in the comments.

Photo:  Kevin (iapetus)

Update:  Also check out Stephen Del Percio's detailed analysis of the Minimum Project Requirements

USGBC Addresses Performance Gap

I'm impressed.  In one fell swoop, the USGBC has stepped up to the plate to address the primary criticisms of the LEED rating system.   

Kudos to Scot Horst and the USGBC for acknowledging an issue that has bothered many users of the LEED rating system: 

“Today there is all too often a disconnect, or performance gap, between the energy modeling done during the design phase and what actually happens during daily operation after the building is constructed,” said Scot Horst, Senior Vice President of LEED, U.S. Green Building Council.  “We’re convinced that ongoing monitoring and reporting of data is the single best way to drive higher building performance because it will bring to light external issues such as occupant behavior or unanticipated building usage patterns, all key factors that influence performance.”

In order to address the performance gap, projects seeking LEED certification must agree to comply with one of the following ongoing requirements:

1. The building is recertified on a two-year cycle using LEED for Existing Buildings: Operations & Maintenance.

2. The building provides energy and water usage data on an ongoing basis annually.

3. The building owner signs a release that authorizes USGBC to access the building’s energy and water usage data directly from the building’s utility provider.

There are serious liability and risk issues implicated by this decision, but I am going to ignore those for now.

Instead, I would like to recognize the USGBC for transparently addressing the primary critique of the LEED rating system.  

What will happen to projects that don't comply with an ongoing requirement?

Happy Fourth of July!

I wanted to take a moment and thank all of the Green Building Law Update readers.  You all have been blowing my minds the last few weeks.  There has been a surge in comments and discussions that take place after my original post.  Many times, these comments and discussions are much more important than the post itself. 

Don't believe me?  Go back and look at the comments after last weeks post on the USGBC's decision to no longer make CIRs public
 

  • Eli S. made a great point that without public CIRs, the USGBC and GBCI may be limiting their liability. 
  • Rich C. followed up on Eli's comment with the point that the USGBC may face less liability, but internal disputes among project teams may actually increase. 
  • Christopher Hill argued that one possible solution is to build more CIRs into any contract.  I agree.
  • Tim Hughes made a fantastic point - someone is likely to set up a third party website or clearinghouse where projects still share CIRs.  Who is going to start this? 
  • Finally, Robert Newcomer pointed out that my case law analogy may have been flawed because facts are never identical from case to case or CIR to CIR. 

Why am I highlighting these comments?  Two reasons.

First, if you aren't reading the comments and, more importantly, taking part in the discussions after the blog posts, you are missing out.

Second, the comments above are proof that attorneys can, in fact, contribute to the green building industry.  Each of the commenters is a construction attorney.

Of course, we always value non-legal contributors too.

Have a great Fourth of July. 

Is the LEED Backlog Resolved?

As I mentioned in my June 24 post, starting June 26, the USGBC eliminated public CIRs in order to improve the functionality of the LEED rating system.  The USGBC's Peter Templeton provided the following explanation for eliminating the public CIRs:

Under the new LEED certification model, standards development and project certification responsibilities are divided between USGBC and GBCI respectively to improve capacity and timeliness. CIRs will be issued by certification bodies under the guidance of GBCI and will continue to fulfill their primary purpose of providing project-specific clarifications regarding the LEED requirements. An unavoidable consequence is that rulings will no longer be made by the LEED Technical Advisory Groups and, therefore, cannot be applied universally.

In short, LEED certification became so popular that the USGBC had to begin allowing certification through independent certification bodies.  Vandana Sinha, over at the Washington Business Journal, recently highlighted the LEED backlog that had resulted in 5 month waits for certification determinations.  

The USGBC responded to the backlog by delegating certification to the Green Building Certification Institute (GBCI), which will then be responsible for ten additional "certification bodies."

With that change, the council employees who touched every LEED design and construction application will turn the job over to 150 trained reviewers who will manage the process from first draft to final award for an expected 3,000 certifications this year. The affiliates foresee ramping up by an additional 50 to 75 people next year, when projections call for up to 3,600 new certification requests.

The USGBC no longer controls certification responsibilities.  Instead, ten independent companies will interpret LEED credits and apply them to projects seeking certification.  Since the USGBC will not  directly oversee the ten companies, the USGBC could not review the CIRs.  As a result, the USGBC was no longer comfortable with universal application of CIRs.

The Washington Business Journal also reported that the GBCI calculated that the LEED backlog will be wiped out by June 26. 

 

That was last Friday!  Did this happen? 

Why Do Non-Public CIRs Mean LEEDigation?

If there was a LEEDigation doomsday clock, I would move it up about 5 minutes towards midnight based on the following decision by the USGBC.* 

Real Life LEED recently reported that the USGBC has decreed that, starting June 26, 2009, Credit Interpretation Requests (CIRs) will no longer be applicable to all projects: 

"Effective June 26, 2009, credit interpretation requests (CIRs) submitted by any registered project will no longer be vetted by USGBC or its LEED Technical Advisory Groups. As a result, CIR rulings will now be applicable only to the project that submitted them. For LEED version 2 projects, rulings on CIRs submitted prior to June 26, 2009, will be honored until they are retired by USGBC or incorporated into general USGBC-issued project guidance, such as through errata or addenda."

All you non-practitioners out there may be wondering what the heck a CIR is and why this matters.  The best way for me to explain a CIR is to compare it to case law. 

When you are talking to a client that is thinking about a lawsuit, one step you may undertake is reading up on case law.  You read case law to find a factually analogous situation to determine if your client has a good chance of winning. 

CIRs function the same way as case law.  To achieve LEED certification, a project must achieve a certain number of credits.  But the requirements for each credit are often open to interpretation.  To resolve this uncertainty, a technical advisory board evaluates each CIR to determine whether or not a credit should be granted.  Historically, USGBC has published these credit  interpretations to inform other builders and designers in future projects.  The first comment after the Real Life LEED post really hits at the importance of CIRs:

Wonder why they decided to do this, public CIRs help project teams immensely. They give good information on how the USGBC look at and interpret credits so that we could submit proper documentation or know what is and isn't acceptable strategies to meet the credits. I don't think LEED is in the stage where it is clear enough to not be interpreted several different ways.

You probably already see why LEEDigation is more likely without public CIRs.  Without public CIRs, architects, engineers and contractors are going to have more trouble interpreting credits and determining strategies that will successfully achieve a LEED credit.  As a result, the likelihood that projects will fail to achieve LEED certification increases dramatically.  As we've discussed, failure to achieve promised LEED certification leads toLEEDigation.

On Monday, we will look at why the USGBC had to do away with public CIRs.

But what do you think about this change? 

*To be clear, the USGBC had to make this business decision.  My post on Monday will go into more detail as to why this decision was necessary.

Contractors Must Report Green Jobs

Here's an update on "green job" requirements created by the American Recovery and Reinvestment Act. Previously, I wrote

To my knowledge, there is no requirement or guarantee in the American Recovery and Reinvestment Act to create a certain number of "green jobs."

While this is still the case, there are job creation reporting requirements that will likely be used to categorize the number of green jobs created by the ARRA.

Federal agencies must report more than 40 separate pieces of data regarding their stimulus spending to a central repository — and contractors are required to submit similarly detailed reports for all work funded in whole or in part by the stimulus legislation.

The deadlines are clear. What’s less clear is how to submit reports and arrive at certain calculations, such as the number of jobs created or saved by the stimulus-funded work.

The Office of Management and Budget should be coming out with reporting requirement guidelines for contractors soon.

If you are a contractor lucky enough to have successfully bid a stimulus project, pay close attention to future guidelines released by OMB. As we draw closer to the 2010 election cycle, you can bet that politicians who supported the ARRA will be looking to tout green jobs that were created.

Of course, the big question remains, will the ARRA result in a surge in green jobs? I'm not an economist but I can report I have noticed a surge in green startups the last two months. As we slowly emerge from the recession, and as green stimulus funds finally start to flow, look for huge opportunities and resulting success stories from startup green companies.

My money is on a lot of new green jobs being created.

LEEDigation and the Y2K Virus

One of my blogging buddies, Shari Shapiro, wrote a piece last week about the lack of green building lawsuits.  Her post reminded me of a conversation I had with an attorney when I was in New Orleans for the ABA Forum on Construction event. 
 
E. Luckett Robinson is a construction attorney in Mobile, Alabama.  During our conversation, Mr. Robinson mentioned that he had heard a lot about the potential for green building litigation for a number of years but that no cases had developed.  Mr. Luckett wondered if green building litigation would be another iteration of the Y2K virus. 
 
You remember the Y2K virus right?  It was thought that all the computers of the world would stop working on January 1, 2000.  Lawyers also expected Y2K litigation to follow.  Of course, computers kept working and the Y2K litigation never developed.  
 
Green building litigation, or LEEDigation, will not go the way of the Y2K virus litigation.  Why? 
 
1.  Motives for seeking LEED certification are changing.  Previously, many owners built to LEED certification for environmental reasons, or to develop goodwill with the public.  Now, owners see reports that LEED certified buildings lead to greater profit, and these owners then seek LEED certification for monetary reasons.  Owners seeking LEED certification for monetary reasons are much more likely to litigate if problems arise.  
 
2.  Regulations are requiring LEED certification with greater frequency.  Many of these regulations come in the form of mandates.  When you create a mandate, you are requiring all parties to comply.  Not all parties will want to comply, and not all parties will be able to comply, resulting in further opportunities for LEEDigation.  

3.  Risk mitigation to avoid LEEDigation is not as easy as risk mitigation to avoid the Y2K virus.  To prevent the Y2K virus, patches simply had to be installed on computers.  Unfortunately, there are an infinite number of ways that a LEED project can run into problems. 
 
Or maybe I am just making this all up.  What do you think?

New York Times, Green Building Law Update Agree

Green building liability issues are starting to hit the mainstream, as reflected in the New York Times' Green Inc. blog last week
 
Sadly, Green Building Law Update was not quoted or linked to.  However, Green Inc. did cite to two instances of potential green building litigation that have previously been discussed on Green Building Law Update.  From Green Inc.: 
Other interesting examples include a “green cement” controversy in Dallas and (though this is not a legal case) a delay in opening a Maryland elementary school that was partly due to changes in state environmental requirements.
You may recall my previous posts "Green Regulation Not Set in Stone" and "Maryland Green School Causes Delay, Extra Costs" that cover the Dallas and Maryland green building legal issues.   
 
It is great that the mainstream press is starting to pick up on the important legal implications from green building projects.  If any journalists out there want to discuss other story ideas (I have a ton!), just drop me an email (chris@greenbuildinglawupdate.com) or give me a call (703-749-1000) and we can set up a chat.

OUR Green Building Mission

I took away a very important, very big thought from my conversation with Rob Watson.  This big, important thought was based first on a comment from Watson himself:

"We are in a 'you bet your species' proposition with unmanageable climate change, so more rapid penetration of LEED is not a problem, rather a prerequisite with regards to solving this global problem."
The second thing that led to my big, important thought was the book Tribes.  Here is a particularly salient excerpt:
"Initiating is really and truly difficult, and that's what leaders do.  They see something others are ignoring and they jump on it." 
Do you see where I am going with this? 

The USGBC was created to improve the built environment because its founders believed our current method of design and construction threatened the planet.  That is a huge task.  When you are undertaking a project like that, of course you are creating new and bigger risks. 

The USGBC is not ignoring risk.  Watson's statements in previous posts clearly show that LEED rating system risks are on his radar.  The risks associated with green building aren't the primary concern for the USGBC; losing the planet to global warming and other environmental risks are. 

On the other hand, I am most concerned about the risks associated with green building.  While Watson sees green building as a solution to our environmental problems, I see risks stemming from green building projects as a factor that could eventually drag down the green building movement.  This is why I want to reduce the risks associated with green building. 
 
If the USGBC or the green building industry does not get my message, or your message, on how to reduce green building risks, then shame on us.  We aren't properly conveying our message.  Or we aren't working hard enough to convey our message.

As an attorney and an independent analyst,  I see it as my role to make that standard work better, with less risk to all parties.  We can't wait for the USGBC to undertake that task - that is OUR task.

LEED and the Top 25 Percent

I have had another green building epiphany.  Actually, a series of epiphanies. 

But before we get to the epiphany, we have to review a simple premise.  I have to thank Will Clark over at Multi-Family Guide for pointing out this premise to me.  So here it is: 

The LEED rating system was created to only apply to the top 25 percent of the market. 

It's true.  After doing a little digging, I found an interview from February 2008 with Rob Watson, the "Father of LEED," where he states the premise.   

VL: Here in the US, LEED is becoming mainstream and expanding to cover homes, schools, banks, businesses, neighborhood development, etc. Ultimately, how far do you think LEED can go?

RW: LEED is designed to fully reach the top 25 percent of the market in terms of the number of square feet—so a quarter of new buildings will be built to LEED specifications. The rest of the market will catch up eventually as green practices become more mainstream. So as we reach our target 25 percent (currently about 10 percent of new building square footage is LEED certified), LEED will get more stringent so it will be a moving bar. Unless the engine is moving, the train following it won’t move, either. So we want to keep raising the bar as the knowledge gets greater and the technology availability gets greater. We want to bring in ever greener and greener buildings.

I would venture to guess that most people don't realize LEED is only supposed to apply to "the top 25 percent of the market."  There are all sorts of ramifications, or epiphanies, we will get to in later posts that are the result of this premise. 

But for now, does anyone know the percentage of square footage that is LEED certified currently? 

Stimulus Bids Pour In

According to a recent Washington Post article, “Construction firms are so eager for work in the sagging economy that project bids are coming in much lower than expected.”

Great news, right?  Not necessarily.  Lower bids can be a good thing if they are the result of increased efficiency in the construction process.  But lower bids can also be the result of increased competition.  These lower bids can be just that - too low - and result in delays and litigation. 

What factors are causing the lower bids on stimulus projects?  According to Kenneth Simonson, chief economist for the Associated General Contractors of America: 

"Wherever I go, I hear of projects that used to attract two to three bids just a couple of years ago, now it's 20 or 30," Simonson said. "Many [contractors] are coming down on the minimum size of projects they will bid on, and ones who didn't do schools now are bidding on schools. Others are coming from out of state to a new region just to keep busy. And they are essentially giving away their services just to keep their key employees busy."

Why should this be a concern to the green building industry?  As I have detailed, the stimulus is providing nearly $25 billion for green building projects.  The green building industry is newer, the parties more inexperienced, and the technology relatively untested.  The opportunity for underbidding these green building projects is tremendous.  Projects that can't be completed at the promised cost could lead to LEEDigation. 

Be careful with your bids. 

Photo:  Jim Frazier

 

A Green Spearin Doctrine

Over the weekend, while writing a response to a Summary Judgment Motion, I was reminded of the most important legal principle in construction law.  Under the Spearin Doctrine:

"If [a] contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications."

United States v. Spearin, 248 U.S. 132, 39 S.Ct. (1918).*

What does this have to do with green building? 

Generally speaking, if a contractor agrees to build a green building project according to the plans and specifications and it does so, the contractor will not be responsible for any subsequent problems. 

Of course, this won't always be the case.  Some contractors will also guarantee LEED certification.  If a contractor were to guarantee LEED certification, that contractor might be required to achieve LEED certification regardless of the project design.  The contractor could build according to the plans and specifications, not achieve LEED certification due to some design error or omission, and the contractor might still be on the hook for the failed certification. 

Do you see the problem there? 

*Today marks what I believe is the first case law ever cited on Green Building Law Update.  We are 150 entries in and I managed to never cite to case law.  That is either extremely impressive or embarrassing. 

Photo:  SnoShuu

Maryland Green School Causes Delay, Extra Costs

Last week, I gave a presentation on green building law to legal counsel for D.C metropolitan jurisdictions.  One of the things that I said, and have repeated to other groups, is that green schools will be a hotbed for initial LEEDigation (see slide 25).  

Want to see an example of what I am talking about? 

The one-year delay in the opening of a new elementary school in Upper Marlboro was largely caused by school system planners' struggles to meet state-imposed environmental standards that were established last year, a school development officer said.
 
The Prince George's County Public Schools' Capital Improvement Program office submitted a final building permit for approval later than expected because designers had to incorporate changes in Leadership in Energy and Environmental Design standards, said CIP officer Rupert McCave.
 
"It changes over the year because everyone is still growing and learning the new requirements," McCave said. "You can talk to any school district in Maryland and they'll tell you it's a learning curve."

 

Why does a one year delay to construction matter?  A one year delay results in increased design and construction costs.  Design and construction firms want to be compensated for the delay.  Owners, in this case a school district, blame the designer and/or contractor for the delay. 
"Economically, [the delay] concerns me," said Board of Education member Donna Hathaway Beck (At-large), who said she asked the school system's chief operating officer, Lawrence Fryer, about the delay at a CIP meeting early in April. "We're paying money now, but we're not going to be using the building until next year."

 

The key to managing your green building risk is to understand the owner's expectations of the green building.  You don't want the owner making comments like this:
"It's just disappointing, and you remind them that this doesn't happen again," she added.

Disappointed owners of green buildings result in LEEDigation.  How are you managing green building expectations? 

Photo:  Dean Terry

D.C. Adopts Renewable Energy Rebate

This week, I want to tell you about new green building developments in the D.C. metropolitan area. 

I like incentive programs related to green building.  D.C. recently came out with a solar rebate program that will most definitely increase the installation of renewable energy systems:

Beginning February 23, 2009, the program will provide rebates to eligible applicants to assist in the installation of a solar photovoltaic or wind turbine renewable energy system. Additional technology rebates are forthcoming in the second quarter of 2009 as regulations are adopted. Projects may include but are not limited to the installation of systems on single- and multi-family dwellings, as well as commercial and institutional buildings. 

Of course, I have to discuss some legal implications from this program.  D.C. is relying on a tried and true enforcement mechanism, the lien:  

Rebates will remain active for a period of six months (6 months) from the date of the award. The incentive contract requires installations to be completed in 6 months. If the system is not completed within 6 months, the system owner may request in writing a six-month extension. If an extension is not requested and/or the project timeline exceeds 12 months from the award date, the applicant is to return the rebate to DDOE. Failure to return the rebate will constitute a lien on the owner's real and personal property to secure repayment.

Filing liens on property in Washington, D.C. is not easy.  Releasing liens is even more difficult.  Are property owners and the District prepared for lien battles if problems do arise? 

Photo:  Jared Zimmerman

DC's Green Bond: The Worst Case Scenario

On Wednesday, we looked at the best case scenario that can result from the D.C. Green Building Act "performance bond" requirement.  We assumed that the green building "performance bond" was created.  The scenario was not pretty and involved extensive LEEDigation™ . 

Today we look at the worst case scenario. 
 
Imagine no new construction projects in D.C.  Imagine an emergency meeting with Mayor Fenty, Councilmember Cheh, major developers and the Surety and Fidelity Association of America and the National Association of Surety Bond Producers.  Sound far fetched?  It's not. 
 
I call this scenario the "Vancouver Catch 22." 
 
See, Vancouver went down the same road as Washington, D.C.  Many British Columbia jurisdictions, including Vancouver, began mandating green roofs.  Simultaneously, the Homeowner Protection Office required homeowner's insurance covering roofs for new developments.  A resourceful government official with the Homeowner Protection Office did some digging and sent out a letter emphasizing that insurers would not issue policies covering green roofs. 
 
What was the result? 
 
No coverage means no new residential developments.  This has left developers caught between the possibility of being mandated by city governments on one hand and shut out by insurers on the other. 
In the end, the Homeowner Protection Office had to call a meeting with the insurers, the building industry and government officials to find a solution.  Quite embarrassing.  A similar scenario could arise in D.C. if the City mandates green buildings and requires green building "performance bonds" but sureties refuse to issue the bonds. 
 
I know D.C. is working hard to resolve the bond language so this will be my last post for some time on this issue.  Which scenario do you think is most likely to occur?

 

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. 
 


 

Wave of LEEDigation

Last week, I attended the ABA Forum on Construction “Talking Green Blues” conference in New Orleans.  The one presentation I was looking forward to the most was “When ‘Green’ Turns to ‘Red’ and ‘LEEDs’ to a Summons and Complaint,” which was moderated by Frank Musica.  Musica is one of the foremost experts on green building claims.  I wrote about Musica's presentation "Don't Let Green Design Cause Red Ink" in September, 2008 and refer to it often when discussing potential problems with green building. 

One of Musica's opening remarks really caught my attention:

"We are about to see a second and much larger wave of green building claims." 

Go back and read that quote again.  This is serious.  This is a big deal for the green building industry. 

Why do Musica and I expect a surge in green building claims in the coming months and years?  I highlighted many of the reasons in my "Green in the Stimulus" slideshow.  The presentation highlights the opportunities, but also the risks, inherhent in green building stimulus projects: inexperienced government entities will have unrealistic expectations of green building projects.  These same entities will also require guarantees of LEED certification or energy performance, or both.  The contracts for these projects will be extremely important. 

The wave of LEEDigation is coming.  Can you swim?  Can your attorney? 

Who Am I?

Recently, I was asked about my involvement with green building.  Why do I keep pointing out potential legal issues that the green building industry may have to confront?  Am I just an impediment to the green building industry? 

Here is my answer.  I am going to use this in the About section up above. 

I am a construction litigator.  I am also a LEED Accredited Professional (AP).  If you want a standard biography describing the articles I have written, the organizations I am a part of, or the schools I went to, go ahead and view my law firm profile, or better yet, my LinkedIn profile.  This section is going to be about why I started Green Building Law Update.

When I studied for the LEED AP exam, I got hooked on green building and became convinced this was the future for the construction industry.  Just after I passed the exam, I began reviewing the D.C. Green Building Act of 2006.  As I stated in one of my first Green Building Law Update posts, when I read the “Performance Bond” section of the Act, I gasped.  In that moment, I realized lawyers have an important role to play in the green building industry.

With any new industry, there will be issues and conflicts that must be resolved.  The green building industry is no different.  Through Green Building Law Update, I aim to point out the problematic regulations and industry trends that are ripe for litigation (i.e. LEEDigation) in order to hopefully prevent some of these issues and conflicts from arising.  If the issues and conflicts do arise, hopefully Green Building Law Update will lead you to contact me.  

These are my goals.  How am I doing? 

What do you think?  Are you convinced? 

LEEDigation

This post is simple.  I have a new term for the green building and legal industries:

LEEDigation. 

What is LEEDigation?  LEEDigation is green building litigation.  LEEDigation could involve disputes arising from green building certification.  LEEDigation could arise if a project fails to obtain government incentives or satisfy mandates for green building construction.  LEEDigation could simply result from improperly designed or constructed green building strategies. 

There you have it:  LEEDigation.  Feel free to start using it.  But don't forget about its origin!

Photo:  Outstanding Photos

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RSVP for the DCENVIRO Happy Hour on Earth Day, April 22.  Hope to see you there.

I Will Buy You a Beignet

A while back, I read a blog post describing how to prepare for a conference.  I am going to the ABA Construction Forum's Talking Green Blues event in New Orleans this week and decided to apply one idea to my conference preparation.

There are two questions in the forefront of my mind and I am not leaving New Orleans without the answers:

1.  What are people doing with contracts involving green building?
2.  How should I start studying up in order to become a renewable energy expert?

If you have answers to any of these questions, email me.  If you are going to be at the event and would like to meet up for a chat, a drink or some gumbo, email me.  If you have an answer to any of these questions and you will be in New Orleans this week, you have to email me.

Seriously. 

Photo:  Phillipe Leroyer

Green Bonds, Car Insurance Not the Same

If you have been paying attention to Green Building Law Update, you know D.C. has a bit of an issue regarding a green building "performance bond" currently required by law.  In short, green building "performance bonds" do not exist.  A few weeks ago, George Hawkins, Director of the District Department of the Environment, testified in support of the use of “performance bonds” as a method of enforcing the District’s Green Building Act (PDF link).  Among the comments that caught my attention, Mr. Hawkins stated that green building performance bonds will be created just as car insurance was created: 
"For example, before there were automobiles, there was no such thing as car insurance.  When the law recognized a growing need to insure against harms that may be perpetrated by automobile drivers to others, the market rose to the demand." 
I made a note to research this specific issue.  Thankfully, I didn't have to do the research.  Will Clark, multi-family housing expert and budding renewable energy entrepreneur, provided a critique of Mr. Hawkins' testimony that deals specifically with the auto insurance claim.  

Automobiles were invented in the mid-1890s. Although various vehicle insurance schemes existed in the late 1890s through the first decades of the 1900s, Massachusetts was the first state to make vehicle insurance compulsory in 1927. New York was the second state to make vehicle insurance mandatory, in 1956. The 'invention' of automobile insurance clearly preceded the state's mandating of such coverage. The DC GBA reverses this precedent by mandating something for which no appropriate instrument exists.

More directly, auto insurance is an extension of tort law, and vehicle insurance exists to compensate a party for its loss, whether personal or property. These loses are either known (cost of repair or treatment) or negotiated. In the case of the DC GBA, the compensated party (District's Green Building Fund) is not the party of loss.  Regarding forfeiture, the legislation states "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." There is no method in the legislation to negotiate (or dispute) the severity of loss or even identify the loss. Certification of LEED projects is made by the US Green Building Council (USGBC), a non-governmental entity, and includes a mix of objective and subjective requirements. Because a failure to achieve the desired certification could be the result of subjective failures, a surety bond is an inappropriate method to ensure compliance.
Will's entire critique is available after the jump.  To be honest, I am not sure I agree with all of Will's points, but I hope this sparks debate.  Like Will, I am not entirely convinced that the Green Building Act creates an inherent conflict of interest.  I am extremely concerned that a bond instrument will not be on the market when the time comes (more on this in a future post). 
 
Will also raises the much bigger question, should LEED be included in government regulation?  I have not committed one way or the other yet and I would love to hear your thoughts.   

Photo:  Larry Miller

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Freed: I Find Myself More Hopeful Than Ever

Today, we run Part II of the Eric Corey Freed interview.  I divided up the interview into two posts because the interview was long and Eric does a great job illuminating green building legal issues in Part II:   "Architects would not be able to guarantee LEED certification because the architect is not the one providing the LEED certification. . . .  I also don't think given the science of building technology that we can guarantee anything about energy usage."    
 
Eric's thoughts on green building blogs are also very interesting.  A few weeks ago, Eric got in a dust up with a blogger over an interview he gave to the New York Times.  Below, Eric provides some thoughts and lessons from the controversy. 
 
Finally, Eric concludes with one of my favorite interview quotes:  "I find myself being more hopeful now than ever."  Read on to find out why Eric is so hopeful.  
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Freed: Design Winner Will Build Actual City Block

My friends over at Sensible City recently offered me the opportunity to interview Eric Corey Freed.  It's not everyday I get to interview someone who was just interviewed by the New York Times so I jumped at the chance.  Even better, Eric is an "organic architect" and studied under a former student of Frank Lloyd Wright.  I am getting married in October at Wright's Arizona home, Taliesin West, so I couldn't pass up this opportunity. 
 
Eric is involved in a tremendous design competition called Urban Re:Vision, and he describes how Dallas was chosen as the site for the competition:  "The mayor, Tom Leppert, was fantastic.  He's got 30 years in the building industry and he understood Urban Re:Vision right off the bat.  So the City of Dallas gave us this block next door to city hall and said 'Here, this would be perfect,' and everything kind of came together.  Now we have what we always wanted, a real city block, with real stakeholders behind it and the winning entry will really get built."
 
In Part I of the interview, Eric and I discuss "organic architecture" and the Urban Re:Vision competition in some detail.  Eric also provides insight into liability concerns surrounding the competition.  On Wednesday, we will discuss broader legal issues surrounding the green building industry and a controversy that arose over Eric's New York Times interview. 

 

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Green Building Thoughts: The Stimulus, The Bond, LEED AP, and Rock Chalk

It may surprise you to learn that I have a real job.  Seriously, I do and I love it!  I am a construction litigator and I am currently involved in a major construction delay claim.  I have been preparing a motion the last few days, hence the late filing of today’s post. 

There is a lot going on in the green building world.  The Stimulus.  D.C.’s unique green building bond (i.e. the green building unicorn).  LEED AP exam deadlines.  And also a little basketball.  I often don’t have time to touch on all the issues I would like, so today, I provide you my thoughts on these many issues. 

The stimulus.  In my “Green in the Stimulus” slideshow, I indicated that the General Services Administration has until April 3, 2009 to prepare a list of federal projects to receive stimulus-funding.  While that is true, apparently the GSA does not intend to release this list on April 3:  “Morris said a list of stimulus-funded projects is being vetted by the administration, but he could not give a date for the list’s release.”  Stay tuned for further details.

The D.C. Bond.  You may have noticed that I have been writing a lot about the D.C. Green Building Act's performance bond requirement.  It seems the issue takes a new turn everyday.  The most recent rumor is that the D.C. may incorporate the green building bond into zoning requirements.  How are we going the wrong way on this?  Look for a guest post next week on the issue. 

The LEED AP Exam.  I get a lot of google hits from people trying to decide if they should take the LEED AP exam.  My general thought is that if you are interested in a career in green building and you have some free time and money, you should take the exam.  You do know the deadline to sign up for the LEED AP exam is March 31, right?  Also, the Green Building Certification Institute recently announced that you actually have to take the LEED AP exam by June 30, 2009.   

The Defending Champions.  Finally, it is my favorite time of year.  It is the time of year when the University of Kansas Jayhawks take flight.  In addition to my job and this blog, I also am just a little bit COMPLETELY AND UTTERLY (ed: my fiancee made this change) obsessed with Kansas Jayhawks basketball.  Always have been, always will be.  I hope Sherron Collins, Cole Aldrich, Bill Self and company continue rolling and dispatch of the Spartans in quick fashion tonight.  Rock Chalk Jayhawk! 

Photo:  ruralocity

Hawkins: Green Building Performance Bond Requirement is Viable

Last week, I had the pleasure of testifying before the D.C. Council regarding green building policies in the district.  As mentioned in my post last week, the focus of my testimony was the Green Building Act's "performance bond" requirement.  Before my testimony, I had the opportunity to hear George Hawkins, Director of the District Department of the Environment.  During his speech, Mr. Hawkins directly addressed the "performance bond" issue and many of the points I raised in my White Paper last Wednesday.  After you review Mr. Hawkins testimony, I would be very interested in hearing your thoughts. 

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“Performance Bond” Requirement for Private Projects

I would now like to turn to the issue of performance bonds and criticism of this enforcement tool. Pursuant to the Act, commercial applicants will be required to submit a “performance bond.” If the building fails to meet the LEED certification requirements, “all or part of the performance bond shall be forfeited to the District.” Experts in the area of environmental finance analysis and DDOE’s research on the subject support this approach as an appropriate and sufficient enforcement mechanism to ensure compliance with the Act.

One of the concerns that has been raised is that “performance bonds” do not currently exist in the financial assurance world. There are, however, a number of laws and regulations that have required forms of financial assurance that at the time of the inception did not exist in the market. In each regulatory context, private financial markets have developed to provide the insurance, bonds, and other financial instruments necessary to demonstrate assurance. For example, before there were automobiles, there was no such thing as car insurance. When the law recognized a growing need to insure against harms that may be perpetrated by automobile drivers to others, the market rose to the demand.

The breadth of operations and environmental risks covered by current rules is an additional testament to the market’s ability to conform to and rise to the demand of a new form of financial assurance. For example, the Resource Conservation and Recovery Act (RCRA) requires that financial assurance be provided by the responsible party as proof that adequate funds will be available when needed to undertake the necessary corrective action at a RCRA treatment, storage, and disposal facility. Many states have their own laws requiring financial assurance, including our own DDOE requirement that developers post a bond equal to the cost of stormwater management infrastructure until DDOE verifies proper installation.

A second concern that has been raised is that it may prove difficult and financially burdensome for developers to provide letters of credit, collateral to obtain a bond, or escrow in amounts up to $3,000,000 (the maximum requirement under the Green Building Act). While opposition to new financial assurance rules is common regardless of industry, DDOE believes fears of business disruption from this new assurance requirement are unwarranted. When the District began to require condominium developers to place 10 percent of the cost of construction in an escrow account or provide a letter of credit under the Condominium Act, the same concerns were cited, and yet, this is now common practice.

An additional criticism of the current “performance bond” requirement is that the enforcement mechanism creates an inherent conflict of interest because those that would require forfeiture of the bonds would also directly benefit from the forfeiture. If forfeited, performance bond funds are to be “deposited in the Green Building Fund.” Under the Act, the Green Building Fund is to be used, in part, for “staffing and operating costs to provide technical assistance, plan review, and inspections and monitoring of green buildings.” On the contrary, it is important to note that many legally-required fees, fines, and penalties are used by governments to fund the operation of the program under which they are collected. For example, D.C. Official Code § 7-632 authorizes the establishment of a Regulatory Enforcement Fund to be used by DDOE to finance its regulatory practice. The Council has routinely authorized use of enforcement proceeds to finance future enforcement actions.

In summary, we believe the bond requirement under the Green Building Act is viable and can be implemented. We have already, and will continue to, participate in discussions with our sister agencies and stakeholders as to how this enforcement mechanism should best be implemented.

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Do you think Mr. Hawkins is right?  Will the financial sector come up with a green building performance bond?

Proposed Revisions to the D.C. Green Building Act Performance Bond

I am very excited for an event taking place today:  the Public Oversight Roundtable on Green Building Practices hosted by the Council of D.C. Committee on Government Operations and the Environment. 

As you may recall, Green Building Law Update has repeatedly discussed the "performance bond" requirement of the D.C. Green Building Act .  As currently written, the D.C. Green Building Act, starting in 2012, will require a performance bond as a guarantee the private development projects will achieve LEED certification. 

Last week, I wrote that no bond, security or insurance instruments exist to guarantee LEED certification.  I have never liked pointing out problems without also providing a solution.  Today, at the Roundtable, I will be speaking about problems with the performance bond and highlighting two potential solutions:

(1) "Financial security" in the form of a fee if a project fails to achieve LEED certification; or
(2) a "D.C. Feebate" similar to Portland's feebate system

In order to crystallize these solutions, I wrote a white paper discussing this complex issue and potential solutions.  You can download "White Paper:  Revisions to Performance Bond Requirement of the D.C. Green Building Act" or read the white paper in its entirety after the jump. 

If you have any critiques or suggestions, please do not hesitate to share. 

Photo:  Echo9er

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The Green Building Unicorn

I have been working with the D.C. City Council recently on revisions to the D.C. Green Building Act of 2007.  In particular, I have been looking for an enforcement mechanism that can be used to ensure compliance with LEED certification requirements for commercial buildings.  The problem is that the current Green Building Act requires a "performance bond" to guarantee certification.  Green Building Law Update has covered the issued extensively and you can read more about it here
 
My research has led me to one conclusion:
 
A security instrument guaranteeing LEED certification is the unicorn of the green building industry. 
 
Seriously. 
 
First, and most importantly, unicorns are mythical creatures.  A security instrument that guarantees green building certification is also a mythical creature. 
 
Let me make this clear: no bond or insurance instrument has been created that guarantees green certification.  This type of security instrument does not exist.  I have discussed the issue with sureties, surety industry groups, insurance companies and insurance brokers.  None of them know of a security instrument that guarantees green building certification.
 
You know what?  Everyone would love to have a unicorn (maybe not, but bear with me).  Similarly, everyone would love for a security instrument to exist that guarantees green building certification.  This instrument could be used in the hundreds of states and localities implementing green building regulations and the innumerable residential and commercial green building contracts being signed nationwide.  Unfortunately, this instrument does not exist and is years away from being developed. 
 
So if you are drafting a green building regulation, do not include the word "bond," "security" or "insurance" as an enforcement mechanism for a green certification guarantee.  You might as well just include the word "unicorn." 

Photo:  Martyn and Debz

The Stimulus: Now for the Bad Part

http://www.flickr.com/photos/27563796@N06/2736542613/Update:  For a rundown of green building provisions in the stimulus pacakge, see this post.

Thank you to everyone who attended Rutherfoord's "Trends in Green Building" seminar yesterday and listened to my "Green in the Stimulus" presentation.  It was great to recognize so many faces in the crowd.  If you came up and spoke to me about speaking engagements or green building legal programs offered by my law firm, please follow up with me so we can make it happen.  For those of you who missed the event, I will post the powerpoint I presented to Green Building Law Update (hopefully with a voiceover) on Monday. 

Now for the bad part. 

The stimulus package is going to result in increased levels of green building litigation. I hope I am wrong, but I think it is inevitable. 

In my "Green in the Stimulus" presentation, I highlighted three factors that will contribute to an increase in green building litigation.  The first factor is an influx of inexperienced parties attempting to build green.  There are many state and local governments that, to date, have not been substantially involved in the green building industry.  These entities, with the help of the stimulus funding, are now going to require green building projects through regulation.  Here is an example.  These state and local governments will be required by the timelines of the law to fast track these green building developments.  Do you see the problems that can arise from this scenario?

The second factor will be the requirement that projects attain LEED certification.  The website of the General Services Administration states:

As of 2003, all new GSA building projects must be certified through the Leadership in Energy and Environmental Design (LEED) Green Building Rating System of the U.S. Green Building Council, and Silver LEED rating is encouraged. 

The GSA will not be the only entity requiring LEED certification for projects.  Who will be responsible for achieving the LEED certification?  What happens if the project fails to achieve the LEED certification?

Finally, the third factor that will result in more green building litigaiton is the emphasis on energy efficiency.  The drive to build green primarily centers around the desire to reduce building energy use.  However, it is very difficult to anticipate how a building will actually perform.  Under the LEED rating system, energy efficiency is modeled through ASHRAE.  Buried deep in a ASHRAE appendix (ASHRAE 90.1, Appendix G, Section G1.2, Note 2) is the following disclaimer:

"Neither the proposed building performance, nor the baseline building performance are predictions of actual energy consumption or costs for the proposed design after construction. Actual experience will differ from these calculations due to variations such as occupancy, weather, energy use not covered by this procedure, changes in energy rates between design of the building and occupancy, and the precision of the calculation tool."

Not every government or municipality will see or understand this caveat.  Heck, many of the entities requiring certification don't even understand the acronym for the LEED rating system.  What happens when the new green buildings don't actually reduce energy usage? 

I am not the only one concerned about these issues.  Real Life LEED initially raised factor three.  Are we wrong?  Tell me. 

Related Links:

Thank You Mr. Fedrizzi

To start this post, I want to thank Rick Fedrizzi , CEO of the United States Green Building Council.  On February 12, I attended a breakfast hosted by Bisnow at which Mr. Fedrizzi was the guest speaker.  I really appreciated his speech - he did not ignore the current economic climate but talked about the opportunities that will emerge from the green building industry.  
 
Even more important, at least for me, was the positive tone of his presentation.  Right after attending the breakfast, I was scheduled to speak to members of the Metropolitan Washington Council of Governments regarding suretyship.  You can see the slideshow presentation I used below.  After I left Mr. Fedrizzi's presentation, I thought about how I wanted to sound as positive as he did about the green building industry.  
 
Instead of focusing on problematic language in the D.C. Green Building Act surrounding the use of the word "performance bond" (a type of surety bond), I instead tried to emphasize how the Act could be corrected. 
 
Guess what?  It worked.  One of the members thanked me for providing a positive presentation instead of harping on the problematic language.  Another member told me that I had made learning about suretyship fun (or at least bearable). 
 
So Mr. Fedrizzi, thank you. 
 
But wait, there is a post-script for all of the Green Building Law Update readers.  You all have the opportunity to help draft new language for the D.C. Green Building Act.  I am seeking input on what enforcement mechanism should be used instead of a "performance bond."  I have ideas, but I want to hear what you think. 
 
What do you think?  Here are some resources to get started:
 My presentation: 

Top 5 Things I Learned at Green Building Law Symposium

Last week, I had the pleasure of speaking at the William and Mary Environmental Law & Policy Review symposium "It's Not Easy Building Green."  The students did a fantastic job and the audience was large and engaged. 

In particular, Mark Pike organized an interactive web 2.0 experience for the symposium that was quite impressive.  Many of the symposium participants used Twitter to discuss the event.  Additionally, Mark set up a blog (in less than 12 hours!) and live blogged each of the presentations.  From what I have heard, the event was even taped and should be made publicly available. 

In addition to the technology, there was plenty of substantive discussion about green building law.  Here are five things I learned at the symposium:

1.  Stephen Del Percio correctly pointed out that state legislation may run afoul of antitrust law if it only incorporates one green building rating system, like LEED.

2.  North Carolina's green building regulations focus on two specific green building strategies -- energy efficiency and water usage -- instead of requiring certification through a rating system.  This seems like a good idea to me. 

3.  If I am going to describe techniques to reduce water usage, I should be able to list more than just "low flow urinals."  Furthermore, I should not emphasize the awkwardness by repeating the word "urinal" and then pausing.  Thanks to everyone for pointing this out to me.

4.  Darren Prum described a ridiculous scenario in Nevada surrounding a property tax abatement that went awry.  Essentially, the property tax abatement that was provided to projects achieving LEED certification almost bankrupted the state. 

5.  There is a Property Tax Reduction regulation in Virginia for projects that achieve LEED certification or certification under another energy preferred standard.  You will definitely be hearing more about this at Green Building Law Update. 

Green Building Law Update will be looking at these issues in more depth in future posts.  Thanks to all of the symposium participants for their hard work and important ideas.

Related Links: 

Sensible Interview: AIA President Marvin Malecha

[As part of the evolution of Green Building Law Update, I like to try out new post topics and formats.  Today I am beginning a new feature at Green Building Law Update:  “Sensible Interview.”  Please let me know what you think.]

Back in December, Kimberly Miller of Sensible City provided me with a press pass to EcoBuild, which is a fantastic event for those interested in discussing green building policy.  At EcoBuild, I was able to interview some brilliant people that have been involved with green building much longer than myself. One such individual was Marvin Malecha, the 2009 American Institute of Architects (AIA) President. I hope you enjoy the interview. 

Chris:  The topic of your keynote speech at Ecobuild was "Inheritance & Responsibility."  How does inheritance and responsibility tie into the current green building industry?

Marvin Malecha:  Perhaps our greatest inheritance is the environment. But it is important to understand that inheritance does not always imply that an abundance was given. In fact many times inheritance has also been defined as the debts of another generation to be paid by the next and the next. In the case of the environment we are in a position of both. We have inherited a world with areas still pure. Areas that contain within them the memory of a planet that was a pure habitat. A planet that nurtured life.

We have also inherited a planet with grave problems that have evolved over time causing toxic sites to be established and levels of carbon in the air that threaten life. Our recognition of both the unspoiled and the spoiled must lead us to a strategic action plan for the environment. Our responsibility is to protect that which is yet unspoiled and to save those species soon to be lost forever if we do not act. It is our responsibility to restore in as timely a fashion as possible those systems we have placed under duress. 

The current green industry provides the tools for both actions. We do have the technology to utilize building materials that are in harmony with the land. We do have the capability to purify water through natural systems that can be established in opposition to traditionally engineered water purification plants. We can plan settlements with a greater density to preserve open tracts of land and protect wildlife habitats. New building materials can utilized recycled materials. they can be produced utilizing manufacturing techniques that minimize carbon emissions in the manufacture and reduce waste. New systems can help to regulate building operations reducing the power necessary to operate a building and thereby reduce carbon emissions and more buildings can be constructed of local materials establishing the sense of region while minimizing the energy expended in delivery.

Chris:  Green Building Law Update tends to focus on the legal aspects of the green building industry.  As you know, the AIA recently incorporated new duties for architects related to green building.  Can you discuss these duties? 

Marvin Malecha:  The AIA has established a sustainability requirement for annual continuing education by members. Four hours out of a required eighteen hours are now necessary to maintain membership in the AIA. It is the intention of the Board to insure that every AIA member is knowledgeable about questions of sustainability and able to employ these ideas in architectural work. It is important to note that the AIA also considers sustainability course work as meeting the health, safety and welfare requirements of the institute.

Also, the Board of Directors has included a provision on sustainability in the institute Code of Ethics. The connection between environmental well-being and human health is essential and it recognizes the most fundamental responsibility of the architect. 

Chris: How do architects manage the risk associated with green building projects?

Marvin Malecha:  The management of risk in contemporary society is a reality of professional practice. Such risk is simply unavoidable and therefore several steps must be taken by the institute on behalf of its members and by members individually.  It is necessary for the institute to foster significant research on the subjects related to sustainability and environmental well-being so that members will be able to act from a basis of knowledge.  It will also be necessary to encourage research on the subject of building performance so that architects will be able to act from a body of knowledge rather than unconfirmed opinions.

Certainly, it is also necessary that to address the design of a truly environmentally responsible project a diverse team of professionals must be engaged. Diverse teams like a diverse natural environment are healthy, even vital in this age of heightened awareness. The Institute makes no assertion that it is the only source of knowledge on this subject. We are reaching out to a broad spectrum of partners from all of the associated professional disciplines and related professional associations. Our commitment is to a carbon neutral target not to any specific rating system. We encourage this same commitment to integrated teams by our members.
 

Green Building Law Update Gets Interviewed

Today, we bring you a first on Green Building Law Update:  my first radio interview

Vik Duggal, over at Konstructr, was kind enough to invite me to be a guest on his KCast interview series.  Konstructr is basically Facebook for the construction industry. 

Some of the topics we discuss include green building attorneys, President Obama's proposed economic recovery package, Twitter and Washington D.C.'s Green Building Act. 

There is one correction I need to make from the interview.  Despite what Vik says, I do not have a "LEED AP" tattoo (or any tattoo for that matter).  Enjoy and please send me your suggestions for future radio interviews! 
 

"What is Green Building Law?"

I like categories.  I like to categorize ideas, issues and thoughts in order to develop my understanding.  The same is true for green building law; I like to think of this emerging practice in terms of categories.

The other day I was asked "what is green building law?" by an environmental attorney.  I had never really been asked that question before so I reverted to my categories.  This is what I told the environmental attorney, almost word for word:

Green building law has both front-end and back-end components.  At the front end, you have the contract.  Additionally, you have to deal with financing, land use and real estate legal issues.

At the back end, green building law deals with potential disputes.  These potential disputes fall into one of three categories:  

(1) Certification - Disputes arise from green building certification when a project fails to achieve certification.  Which party will be responsible for the failed certification?

(2) Regulations - Regulations refer to those green building regulations that require or incentivize green building development.  Failure to comply with these regulations can result in green building litigation.

(3) Green building strategies -  Specific components of a green building  that can result in litigation.  The example I give is a green roof that leaks.  Who will be responsible for the leaking green roof?

Do these categories properly define green building law?  What am I forgetting?  Most importantly, do you have a better understanding of what a green building attorney can do for your business?  

Green Litigation Could Have Been Worse

One of Green Building Law Update's favorite topics in 2008 was the Shaw Development v. Southern Builders case. You may recall that the Shaw Development v. Southern Builders complaint was one of the first examples of green building litigation, which resulted from  a project's failure to obtain green building tax incentives.

After recently research the condominium project, I was stunned, but not all that shocked to read the following headlines:

Crisfield Condo Sales Slump; Captain's Galley Restaurant Closes

Condominium auction sale canceled

The first article describes the struggling Shaw Development project:
 

Twenty-three condominiums sit along the water in Crisfield. So far only six have been sold. At the bottom of the condominium is the empty Captain's Galley restaurant. It closed on Monday. Shaw said the operators have not paid rent in a couple of years.

The second article describes the results of the condominium project's struggles:

A foreclosure sale planned for the waterfront Captain's Galley Condominiums was called off Friday after the owner filed for Chapter 11 bankruptcy. The renewed interest in the condo units is due in part to recent price reductions. Two bedroom units now start at $247,000 and a three-bedroom listed at $369,000 will probably be reduced to $359,000, she said.

"They're huge reductions -- less than half the original price," she said.

If the Shaw Development v. Southern Builders case had gone to trial, it would have resulted in very messy green building litigation.  A good attorney would have argued that the condominium sales slump and the restaurant closing was the result of the project's failure to achieve LEED Silver certification.  A good attorney would have argued that the failure to achieve certification not only resulted in the lost tax incentives, but also resulted in the slumping sales and restaurant closing. 

Do you think Shaw Development could have successfully recovered these damages?

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Photo Credit:  WBOC

All A-Twitter About Green Building Law

If you are reading this blog, you are likely well-versed in social media or have at least heard of Twitter.*  Through Twitter (follow me here), I have had some amazing conversations about green building and the law and I would like to share one of them with you that really highlights how quickly a green building project can go bad. 

Sara Sweeney is an architect in New Jersey specializing in sustainable building research and consulting.  She is also a twitter user and recently started a blog.  The following is an actual conversation she and I had on Twitter: 
sarasweeney: Working on LEED application. Totally confused myself. Had 1 pt down for LEED Energy & Atmosphere Credit 1, when we had 6. Phew. All is right with world again.
 
chrischeatham: Glad you fixed that. Makes me wonder what happens when someone doesn't actually catch this type of mistake...
 
sarasweeney:  Yes, was wondering what I was going to tell the client for about 15 minutes. Um, we actually are Silver now...
Sara is smart and, thankfully, she caught her mistake.  But this short conversation demonstrates how easy it is to make a mistake that costs a project LEED certification.  For every 100 consultants or architects correctly filling out LEED applications, there will be one that does not.  One mistake, like what Sara described, could result in a project obtaining LEED Silver certification when the owner was anticipating LEED Gold certification.     

*If you would like to learn more about twitter, watch this video.  You can also follow my twitter stream here.  Twitter is going to be all the rage in 2009, you should jump on board now.

The Political Winds Are Changing: Part I

As we head towards the finish line of 2008, we turn our eyes towards 2009 and what lies ahead for green building.  The next two posts at Green Building Law Update will highlight the shift in political support for green building policies that will soon occur. 

In order to understand the shift, we must start with the current political support, or lack thereof, for green building policies.  Heading into the New Year, the Bush Administration has quietly been passing and killing regulations through the Office of Management and Budget (OMB).  One such regulation that the Bush Administration refused to adopt would have improved energy efficiency in federal buildings:

On Nov. 19, the OMB ordered the Energy Department to kill new regulations that would have forced the federal government to buy more-energy-efficient lights, appliances, and heating and cooling systems. Daniel J. Weiss, climate strategy director at the Center for American Progress Action Fund, called that retreat from a 2005 requirement "unbelievable."

Notably, 2005 energy efficiency requirements were passed by a Republican Congress.  According to Department spokeswoman Jennifer Scoggins, the energy efficiency regulations may be issued before or during the next administration.

As the economic downturn continues into 2009, construction players must seize all opportunities for new projects.  On Friday, we will discuss the shift in support for green building policies that will occur with the incoming Obama Administration and new business opportunities that result.

Related Links: 

 

D.C. Council Delivers Present to Surety Industry

Here at Green Building Law Update, sometimes we wonder if we are just talking to our parents and significant other.  Then we get a comment or a great email from one of our readers and we realize someone is actually paying attention.  With that said, what happened this past week in the green building industry astounded and amazed Green Building Law Update.  

Earlier in the week, your humble author presented a seminar “Green Building Law from a Surety’s Perspective” to a client.  Just prior to the seminar, an article was published in the Washington Business Journal that highlighted the D.C. Green Building Act of 2006 performance bond requirement.  The first few paragraphs were sent to me but I didn’t have time to review the full article before the presentation. 

You may recall that this performance bond requirement drew the ire of the Surety and Fidelity Association of America (SFAA) and the National Association of Surety Bond Producers (NASBP) and Green Building Law Update.  When I first read the performance bond requirement, I literally gasped out loud and realized the green building industry may have some serious legal problems in the very near future.  Basically, the D.C. Council was demanding an insurance instrument that didn’t exist.

During the presentation to the surety client this past week, I highlighted the D.C. Green Building Act performance bond requirement as an enforcement regulation that was going to cause the surety industry problems.  After the presentation, I returned to my office and attempted to unbury myself from hundreds of emails.  With time on my hands, I opened the full version of the Washington Business Journal article and, once again, gasped out loud when I read the following paragraph:

Both trade groups, as well as the Surety and Fidelity Association of America, have met with D.C. officials to air their concerns, one of the first challenges to legislation that is among the first of its kind nationwide.

Alan Heymann, a spokesman for the D.C. Department of the Environment, said his agency has formed a working group with the Department of Consumer and Regulatory Affairs to address the surety industry’s concerns. Both agencies are tasked with implementing parts of the act.

Green Building Law Update is not taking credit for the D.C. Council’s reconsideration of the green building performance bond requirement.  But after writing numerous articles, posts and having discussions with the D.C. Council, I would like to think I played some small part in effecting change. 

Congratulations to the D.C. Council for taking steps to remedy what could have been a problematic regulation.  Congratulations to the SFAA and NASBP for pointing out this problematic provision.  Congratulations to the green building attorneys writing about these issues and helping the green building industry avoid legal problems. 

Of course, there are going to be more green building legal problems.  Green Building Law Update is excited about discussing these issues in 2009 and, hopefully, effecting more change.  

Related Links: 

Green Regulation Not Set in Stone

Green Building Law Update came across an interesting lawsuit in Texas challenging a green cement regulation.  First, here's a little background on green cement regulations
Green cement resolutions put pressure on wet kiln operators to either update their smog-causing pollution controls to the level of dry kilns, or replace their wet kilns with new dry ones. They do this by incorporating state emissions standards as specs in bids for cement purchasing. These specs favor more aggressive pollution controls.
 
 
The cities of Dallas, Ft. Worth, Arlington and Plano had apparently adopted similar green cement resolutions.  In November 2008, Ash Grove Cement filed a suit challenging these resolutions: 
Late in the afternoon on the day before Thanksgiving, lawyers for Kansas City-based Ash Grove Cement filed suit in federal court against the cities of Dallas, Ft. Worth, Arlington, Plano, The Dallas County School District and Tarrant County for adopting “green cement” resolutions that favor modern, less polluting dry kilns over older, dirtier wet kilns - like the three the company operates at its 43-year-old Midlothian plant, south of Dallas.

 
According to a Kansas City Star article, Ash Grove Cement alleges that the green cement resolutions violate Texas law because municipal bodies are required to evaluate only the competence of the bidder and the quality and price products or services.  The suit also contends that the resolutions violate Ash Grove Cement’s constitutional rights.
“This is not a case about air quality; rather, it is about whether the defendants, however well intentioned but misguided their goals might be, may ignore laws they do not wish to follow, may pass resolutions which are unfair, unwise and unlawful, and may take property away from Ash Grove in an arbitrary and capricious manner,” Ash Grove’s complaint states.

 

As more "green" regulations are passed at the federal, state and municipal level, challenges to these regulations by affected companies will become more common.  The outcome of these lawsuits will either kill "green" regulations or force companies to comply.  Needless to say, there is a lot at stake and Green Building Law Update will continue to keep you apprised of the outcome. 

Related Links: 

 Credit:  Thanks to Rich Cartlidge for originally sending me this story. 

Thanks for Attending!

Thanks to all of the Green Building Law Update readers that attended Rutherfoord’s symposium, “Green Building: Opportunity or Legal Quagmire.”  I went to bed last night without a voice, but thankfully, the laryngitis let up and we were able to discuss green building litigation issues. 

If you are interested in having me speak on green building legal issues with your company or organization, please email me at chris@greenbuildinglawupdate.com or call me at (703) 749-1056. 

So what did you think of the presentation?  Any outstanding issues that you didn't ask?  

A Tale of Two Cities: Portland's Feebate

 Continuing our posts from GreenBuild, our next two posts will discuss two very different green building regulatory enforcement mechanisms from two very different cities.  The first city, Portland, has created a very innovative enforcement mechanism to enforce its stringent green building regulations. 

Portland is very similar to other cities in that they will require specific project to achieve varying LEED certification levels.  Portland's enforcement mechanism, however, is much different.  Called a "Feebate," 
Portland will require that some projects pay into a green building fund while other projects obtain rebates from the city.

Under the Feebate system, all new buildings built to code are assessed a fee.  If a project is built to LEED Silver, then the fee is waived and the owner obtains access to financing options.  Even better, if a project attains LEED Gold, the city writes the project owner a check! 

All money that is paid into the green building fund is used either for the incentives or to educate about green building.

Pretty neat, don't you think?  After the Holidays, Portland is coming out with its economic analysis of the plan, and I am looking forward to reviewing it with you. 

Photo Credit:  Scott_rtw

Green Building: Opportunity or a Legal Quagmire?

Sorry, I won't be answering this rhetorical question today.  Instead, a group of construction, design and surety legal experts will attempt to address this difficult question at an upcoming symposium: 

What:  Trends in Green Building Seminar

Who:  Tom Mawson - The USGBC and Trends in Green Building; Chris Cheatham - The Emergence of Green Building Litigation; Bryan Phillips - Green Construction: A Legal Perspective, Dan Knise - Designing Green - With Reward Comes Risk, Geoff Delisio - A Surety Perspective on Green Building

When: Tuesday, December 2, 2008  9:00 - 12:00 AM

Where:  4301 Wilson Boulevard, Arlington, VA 22203

You can also download a complete invitation here

I will be speaking about the emergence of green building litigation with a focus on the Shaw Development v. Southern Builders case.  Other speakers will address green building issues from a construction, design and surety perspective.  Seating is limited so please RSVP by November 21 to Nancy Shipley at nancy.shipley@rutherfoord.com

Let me know if you have any questions regarding the event.  If you are going to attend let me know (chris@greenbuildinglawupdate.com) -- I would love to meet some of my readers!  
 

A Week of Epiphanies: I Don't Mean to Diminish This But. . .

In continuing our week of epiphanies, here’s another one that struck us here at Green Building Law Update:  should governments consider getting out of the green building certification process? 

Yes, I realize this epiphany is out there and that practically every state has implemented some sort of green building regulation.  Over the past few months, we have profiled green building regulations in D.C., Virginia, Indiana and Maryland, to name a few.  But the more I think about these regulations, the more I become concerned that governments should not mandate certification, particularly of public projects.

Apparently, I am not the only one with these concerns.  For example, this article cites an Evanston, Illinois official that is concerned with certification cost:

At the meeting, Evanston residents spoke about the Green Building Ordinance, which was drafted by the Evanston Environment Board. . . .  Ald. Lionel Jean-Baptiste (2nd) cited the need to look closer at the cost of the ordinance.

"It's difficult in this current economic climate for anyone to build," he said. "We need to look more into the cost, and have greater discussion at the committee level." 

And here is another example, this time a LaCrosse, Wisconsin official voicing concern over the costs for green building certification:

“When I think about all this discussion about certification and not certification, I think we’re going to do all this good stuff so let’s just declare it a green building and go home,” Supervisor John Medinger said during the Law Enforcement Center Construction Committee meeting this week. “We say it’s a green building. Who says it isn’t? I don’t mean to diminish this, but I’m trying to see what we’re going to get with this $161,000.”

With the state facing a $3 billion shortfall, Medinger said the county will take a hit and can’t afford to spend money that brings no return.

These officials represent a minority view that government’s should not mandate green building certification due to the associated costs.  But Mr. Medinger drives home the point:  what are governments getting out of certification? 

Green building certification is primarily a marketing tool used to sell a building.  Green building strategies can most definitely be incorporated without obtaining certification and the results can still be confirmed through commissioning.  What benefits are cities and states getting when their public buildings are deemed certified?

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A Week Of Epiphanies: My Own Backyard

Tyson's Rendering Over the weekend, we here at Green Building Law Update had some green building epiphanies.  So let’s start with epiphany number one.  As I was driving into my law firm’s office in Tyson’s Corner on Saturday, I looked out at the construction and thought to myself, why am I not writing about that? 

This isn’t any regular construction I am referring to either.  The construction I see everyday is the beginning stages of the Tyson’s Land Use Task Force Recommendations.  While I have been perusing the Internet for green building stories, there is a green building story happening in my backyard! 

The first time I read about the Tyson’s Corner redevelopment project was in this post  from Kaid Benfield’s NRDC blog.  Kaid describes the current design of Tyson’s Corner:

an absolute mess of a place that would be hard-pressed to function worse environmentally or even as a place to navigate in a car.  You'd have to be suicidal to try it on foot. 

Kaid is right – I have worked in Tyson’s for three years and walked to lunch once.  Thankfully, the Tyson’s Land Use Task Force Recommendations are aiming to fix these problems by focusing on “smart growth.”  Smart growth generally is an urban planning and transportation theory that concentrates growth in the center of a city to avoid urban sprawl.  

Maybe you are wondering, what does this have to do with green building?  Next time we discuss the Tyson’s Corner redevelopment, we will look at the Task Force Recommendations, which include green building regulations.  

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Lights Go Out on Green Stadium Litigation

 

Today we are going to take a hiatus from the discussions of green building in the current financial markets and, instead, wrap up what potentially could have been major green building litigation.  On October 17, 2008, the Lerner family and the D.C. Government resolved litigation stemming from the LEED-Silver certified Washington Nationals Stadium. 

 

In previous Green Building Law Update posts, we focused on the stadium's certification and discussed the “green” stadium scoreboard that incorporated “high-definition LED technology that the Lerner family paid to have upgraded beyond the basic specifications called for in the ballpark's design.”  During negotiations over the protracted stadium dispute, it came out that Lerner representatives were unhappy, in part, about the lighting on the scoreboard that they paid for through an apparent change order.

 

Based on the published Settlement Agreement, the dispute over the LED-lit scoreboard remained a sticking point throughout the negotiations.  On page 1 of the Settlement Agreement, the Lerner Family agreed to withdraw and irrevocably waive “its demands for credits . . . for disputed scoreboard change orders.”  What were the final results of the negotiations?  The City will pay the Nationals $4 million to resolve the disputes and, in return, “the team will pay $3.5 million in rent that was due to the city last spring.”

 

With this settlement, the green building industry dodges what would have been the most substantial green building litigation to date.  But the day is coming.  Are you convinced that you need to have a rock solid green building contract?

 

Related Links

Anyone Using Energy Star Benchmarking?

To finish off the week at Green Building Law Update, we are going to attempt to answer another reader question with the help of all the readers out there. In a previous post, Anna MacLeod posted the following question: 

I need to find some DC-based architect, commercial building development companies, etc… Anyone who would be affected by the requirement described in the article below.

 

"Washington, D.C., was among the early cities to require privately owned buildings to meet LEED standards. Now, it is requiring the city government as well as private building owners to benchmark their buildings using the Energy Star Portfolio Manager tool and to submit performance data to the City, which will then publish it for the public.'

           

If anyone can help me by sending me any contacts or websites it would mean a lot to me.

 

I am glad Anna asked about this issue because I have been meaning to post on this topic. Back on July 15, 2008, the D.C. City Council unanimously passed The Clean and Affordable Energy Act of 2008.  Among the provisions in the Act is a requirement for Energy Star benchmarking:

 

Beginning in 2010, it would require commercial property owners to generate an Energy Star efficiency "score" for their buildings using free online tools provided by the Energy Star program. That score would be made available to the public by the District Department of the Environment (DDOE).

 

You may be asking yourself, what is the point of this benchmarking program? According to Cliff Majersik, the program director for the Institute for Market Transformation, the benchmarking program will create “a market-based demand for energy disclosure.” If the D.C. Government’s plan works, there will be increased demand for green buildings. In short, you might want to think twice about developing a non-green building in the District of Columbia. 

 

So can anyone out there help out Anna? If you are currently using the Energy Star benchmarking tool or The Clean and Affordable Energy Act of 2008 will affect you, please drop a note in the comment section below with more details and contact info for Anna. Thanks!  

 

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Southern Builders v. Shaw Development: Green Building Damages

Today we are wrapping up our discussion of Shaw Development v. Southern Builders, one of the first examples of major green building litigation.   On Monday we discussed the basic facts of the case; on Wednesday we looked at the contractual green building requirements between the two parties; and on Friday we looked at Shaw Development’s stated causes of action. We conclude our discussion today by looking at the damages alleged by Shaw Development. 

Parties that bring claims or lawsuits based on a green building project’s failure to achieve certification must also prove damages. Often, owners seek green building certification to obtain government incentives or comply with regulatory mandates. In Shaw Development’s counter-complaint, damages were based on the owner’s failure to obtain green building tax credits: 

Shaw Development demands judgment in its favor and against Southern Builders for . . . Six Hundred Thirty-Five Thousand Dollars ($635,000.00) in tax credits for failing to construct the Project in conformance with a (LEED) “Silver Certification . . . .”

The tax credits for which Shaw sought damages were part of a State of Maryland green building tax incentive program. Many cities throughout the country have enacted similar tax incentives to entice developers to build green. Failure to achieve anticipated incentives can result in litigation similar to this case. Additionally, many cities, including Washington, D.C., New York, Los Angeles and San Francisco, have adopted mandatory green building laws and codes that will require the incorporation of green building strategies into all construction projects. Failure to comply with green building laws and codes creates additional liability risks for contractors. 

 

As inexperienced parties undertake green building projects, unmet expectations will result in disputes and lawsuits. Parties must protect themselves from the start by clearly stating all parties’ understanding of the green building certification process and what is to be achieved. Furthermore, parties must fully understand the specific requirements of the green building incentives and mandates that apply in their locality. While Shaw Development v. Southern Builders was apparently settled without a trial, further green building litigation is just around the corner and is unlikely to be as easily settled.   Check back with Green Building Law Update as we continue to discuss how to mitigate your green building risks.   

Southern Builders v. Shaw Development: Green Building Claims

Today, Green Building Law Update continues a discussion of the Shaw Development v. Southern Builders case, which demonstrates the emergence of green building litigation.  On Monday, we reviewed basic facts related to the legal case and on Wednesday we looked at the contract between the two parties to determine green building responsibilities.  Today we focus on the causes of action alleged by Shaw Development in the counter-complaint.  

When owners and developers move forward with green building projects, they often do so with the goal of achieving a specific green building certification.  What happens if a building fails to achieve the anticipated level of green building certification?  

The owner may blame the designers, engineers, contractors and subcontractors for such a failure and sue one or all of the parties. Based on the counter-complaint and Project Manual, Shaw Development anticipated that the Project would achieve LEED Silver Certification and brought an action for breach of contract and negligence against Southern Builders when the certification was not obtained.  

The liability of parties for failure to achieve a green building certification will be determined by the relevant contracts or related promises, which were reviewed on Wednesday.  If a contractor guarantees a specific green building certification, the contractor will be responsible for the failure to achieve certification.  The contractor should only commit to constructing the building per the approved design and using the approved materials.  If the contractor performs in accordance with the contract, design and specifications, there should be no liability even if the building does not achieve the desired certification level.  The contractor also needs to make sure that potential liabilities flow down to its subcontractors.  The owner, on the other hand, may have valid reasons for requiring that the contractor guarantee green building certification.  For example, the project may have to achieve certification to comply with green building codes or regulations. 

On Monday, we will review the related damages alleged by Shaw Development and finish the discussion of this case.  In the meantime, check your green building contract! 

Related Links

Southern Builders v. Shaw Development: The Most Important Part!

This week at GBLU, we are focusing on the Shaw Development v. Southern Builders case, the first significant example of green building litigation.  On Monday, GBLU explained the importance of the case and reviewed the basic facts.  Today GBLU will review the most important part of the case, the contract between the parties and accompanying green building responsibilities.  

Why is the contract the most important part of this case?  The contract is the primary means for dictating a contractor’s green building obligations.  Shaw Development and Southern Builders relied on an AIA A101-1997 Standard Form of Agreement Between Owner and Contractor as their general contract, which did not include green building requirements.  Additional requirements were incorporated through a Project Manual that made specific reference to green building certification:  

Project is designed to comply with a Silver Certification Level according to the U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) Rating System, as specified in Division I Section “LEED Requirements.” 

Shaw Development’s AIA contract and incorporated Project Manual lack clarity in articulating Southern Builders’ responsibility for constructing a LEED Silver certified project.  While the Project Manual does state that the project was designed to comply with LEED Silver certification, it does not assign the contractor responsibility to construct the project according to LEED Silver certification.  Instead, as stated in A101-1997, the contractor is responsible for building according to the designs and specifications.  Thus, the contractor could be liable if it failed to build according to plans and specifications, which resulted in a failure to achieve LEED certification. 

Owners and contractors are well served to clearly describe the contractor’s responsibilities related to the construction of a green building project.  If your green building contract looks anything like the contract from Southern Builders v. Shaw Development, you should think about revising it. 

Related Links

 

Southern Builders v. Shaw Development: Green Building Litigation

Way back on August 13, GBLU’s inaugural post focused on the impending green building litigation and factors that would cause the litigation.  One of the factors that was described focused on parties’ financial expectations:  “Parties undertaking green building projects for purely financial reasons will expect to make a profit.”  In order to make a profit from a green building, the project typically has to be certified.  Thus, it was anticipated that green building litigation would most likely occur when a project failed to achieve certification.  

Not surprisingly, we now have an example of green building litigation arising from this very scenario.  On February 16, 2007, Shaw Development, L.L.C. (Shaw Development) filed a counter-complaint against Southern Builders, Inc. (Southern Builders) in the Circuit Court of Somerset County, Maryland arising from, in part, the projects failure to achieve LEED Silver certification.  While the case never proceeded to trial, Shaw Development’s counter-complaint is instructive as to the future of green building litigation.  Our next three GBLU posts will look at the Shaw Development v. Southern Builders case in detail:  

•    Monday we will review the facts
•    Wednesday we will review the contract
•    Friday we will review the causes of action
•    Next Monday we will review the damages and provide some tips to avoid this type of litigation

The facts are similar to most construction projects.  Prior to the lawsuit, Shaw Development purchased property in Somerset County, Maryland and retained Southern Builders to construct a condominium project on the property.  In the counter-complaint, Shaw Development alleged, among other things, that Southern Builders failed to construct the condominium project in a good and workmanlike fashion and, as a result, the project did not achieve USGBC LEED Silver certification.

The contract between two parties is key to determining liability between two parties undertaking a green building project.  Check back Wednesday when we review the contract between Shaw Development and Southern Builders.  

Related LInks


 

Get Your Green On With the AGC

On September 15, I had the opportunity to serve as a judge for the Associated General Contractors of DC’s Washington Contractor Awards for green buildings.  Tabbed the “2008 Anti-Boring Event of the Year,” contractors from across the D.C. metro area will gather on October 7 to honor this year’s award recipients.  I reviewed and voted for submissions from three green building categories:

•    Best Sustainable New Construction Project
•    Best Sustainable Design-Build Project
•    Best Company Sustainability Program

I was particularly impressed with the sustainable programs implemented by the nominated contractors. Hopefully we can discuss these programs with some of the nominees in a future GBLU post. 

Both the AGC and the AGC of DC are fantastic resources for contractors looking to learn more about green building construction practices.  For example, in the AGC of DC’s most recent newsletter, two green building training courses hosted by the AGC were highlighted: (1) LEED Estimating & Marketing; and (2) Building to LEED NC for Contractors.  I have attended similar courses hosted by the AGC and can attest to the thoroughness and quality of these programs.   

All of the sustainable submissions were very impressive but you are going to have to attend the AGC of DC’s event to learn the winners.  Tickets are still available!
 

Stadium LED Lights Strike Out?

Back in August, GBLU discussed protracted disputes between the Washington D.C. Government and the Washington Nationals owners over the construction of the Nationals’ new stadium.  The dispute centers on when the LEED certified stadium was substantially complete.  To date the Lerner family, the team owners, have withheld payment of $3.5 million as a result of the dispute.  It appears the dispute is not going away either: 

In negotiations with the D.C. Sports and Entertainment Commission, which oversaw stadium construction, Lerner representatives have cited problems with the ballpark, including the quality of the sound system and the lighting on the scoreboard, according to sources familiar with the talks who spoke on condition of anonymity because of the dispute. 

What does this have to do with green building?  The lighting on the Nationals’ scoreboard is “made possible by high-definition LED technology that the Lerner family paid to have upgraded beyond the basic specifications called for in the ballpark’s design.”  LED lighting uses significantly less energy than traditional lights and is an increasingly popular green building strategy in stadiums, like the Beijing Olympic Basketball Gymnasium.  In this case, it appears the Lerner family’s expectations of the LED scoreboard lights were not met.  

Could this result in significant green building litigation between the D.C. and the Lerner family?  The City seems to think so:

Matthew Cutts, chairman of the D.C. Sports and Entertainment Commission, which oversaw stadium construction, said the agency is in the process of hiring the law firm Seyfarth Shaw to handle the case.   

Related links:

Guarding Your Green Building Investment

While GBLU has written extensively about green building bonds, a reader recently pointed out that green building insurance should not be overlooked.  

When you talk about green building insurance programs, you have to start with Fireman's Fund.  Back in October 2006, Fireman’s Fund had the foresight to launch three products for commercial green buildings, just ahead of the green building curve.  Below is a summary of three of the insurance programs offered by Fireman’s Fund as part of its “Green-Gard” insurance suite.  

•    Green-Gard Certified – If you have a loss on your green-certified property, Fireman’s Fund will pay to rebuild and replace to recognized green specifications.  This includes coverage for vegetated roofs, alternative power systems and alternative water systems.  

•    Green-Gard Upgrade - This coverage is specifically designed for those who have not yet made green upgrades, or have not attained green certification from the U. S. Green Building Council (USGBC). If you have a total loss, Fireman’s Fund will pay to rebuild your structure, from top to bottom, as a green-certified building.

•    Green-Gard Commissioning - For any loss that exceeds $10,000, Fireman’s Fund will pay for a professional commissioning engineer to oversee your building’s repairs and inspect new or repaired systems.

One interesting component of the Green-Gard Certified program is that if green building certification requirements have changed since the owner built or upgraded, the additional cost of meeting the new specification is covered.  GBLU has often wondered what will happen when LEED v. 3 is released in 2009 and cities have regulations on the books requiring compliance with previous LEED rating systems.  Fireman’s Fund has already accounted for this development.  

So what other green building insurance programs are out there? 

Green Building Attorneys Warn of "Carnage"

If you are in green building and worried about associated risks, this may be a post you do not want to read.  On September 11, the Journal Record