[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).

If the contracts place the risk to achieve LEED certification on the construction-design team, then which member(s) of the team—the LEED AP firm, the architect, the general contractor, the engineer, all of them?  Given that the achievement of certification takes a combined effort of all these parties, one would think that the contract should bind all parties to the same goal, but then if the building fails to achieve Platinum status with whom does liability lie?  With each member of the design team jointly and severally or with the party “responsible” for the failure to achieve the goal?   But given that LEED certification is determined from the cumulative points earned for specific efforts, multiple failures by different parties could lead to a project earning only 67 points, just one shy of the 68 points necessary to achieve Platinum status.  

Then one gets to damages and their calculation.  If an owner does not intend to profit directly from this project, as in the case of the Hannaford store, but instead expects indirect returns through increased good will, courts may be unwilling to recognize these losses because they are indirect and may be difficult to quantify with reasonable accuracy.  Speculative damages that cannot be proven with reasonable certainty won’t ever make it to a jury or fact finder.  

One possible method to counteract some of the issues related to liability and damages is for an owner to build a significant retainage into the contract until LEED certification of whatever level desired is achieved.  This method has several advantages in that it establishes some level of the owner’s damages related to the failure to achieve certification independent of “fault” of any particular party and also, it ensures that the construction-design team remains motivated to assist in the certification process, which can drag out 3-6 months after substantial completion.  A disadvantage of this method is that the construction-design team still needs to price or insure against the risk and that price will be passed on to the owner.  This will impact the cash flow of contractors, and downstream subcontractors and suppliers.  Given the usual time necessary to receive certification, some contractors may not be willing to wait or forgo placing liens on the project to stay within statutory deadlines.  But if an owner wants to bind the construction-design team to producing a LEED certified building, increased risks are pretty much unavoidable, the question is how are they allocated and priced, and maybe, in the future, insured.  (Note: Though it appears that AIG is dipping its toe into insuring contractors’ Green reputations and for defense costs in green litigation, so far I haven’t seen an insurance product that insurers a contractor against an owner’s consequential damages for failure to meet LEED certification – See Aug. 5, 2009 Post AIGRMGreen Reputation Coverage).

As you can see, many of the questions above generate more questions rather than answers.  Ultimately, the successful completion of projects promising LEED certification, and the litigation of the unsuccessful ones, will establish what contractual language “works” but until then, lawyers drafting such contracts will have to fill in the blanks.

Asha Echeverria is an associate at the law office of Bernstein Shur in Portland, Maine.  She practices in the firm’s Litigation and Energy and Environmental Practice Groups.  Asha is also a registered professional engineer in Maine and Pennsylvania, and recently passed the LEED® NC exam, making her a LEED® accredited professional.