In a recent review of contracts involving green building construction projects, less than 20% had properly drafted provisions addressing green building matters.
100 contracts involving green building construction projects were reviewed. The methodology was admittedly unscientific, if only in that the sample was too small given the large number of sustainable building being erected across the country. The contracts were each received by this law firm during 2016 from clients and prospective clients in matters involving a dispute at a green building construction project. In an effort to consider as representative a sample as possible, the last 50 contracts received where an owner was a party were selected and the last 50 contracts received where a design professional was a party, were selected.
89% of the contracts were for projects pursuing LEED. 7% were pursuing the NGBS. 1% were pursuing Green Globes. 1% were pursuing Energy Star alone. In 2% of the contracts it could not be determined what green building rating system was being pursued.
The projects were of a variety of building types (although no single family residential) including public schools, private office buildings, multi family residential, etc., and most were large dollar amount projects.
The projects were located in different jurisdictions and in most instances attorneys that this law firm has a relationship in those jurisdiction undertook the review. 21% of the projects were in Washington DC, 19% in Maryland, 18% in Illinois, 17% in New York, 9% in Texas, 9% in California, 3% in Florida, 2% in Virginia, 1% in Massachusetts, and 1% in Rhode Island.
Of note, this review was not looking for and did not compile missed signatures, not compiled change orders or other clerical errors. But rather, this review was an effort to identify substantive errors in contracts that could place a party or the transaction in jeopardy.
It is of interest that 61% of the contracts used at least a part of an AIA Contract Document form although most were older out of date versions and significantly only 8% used a correct AIA Sustainable Project Contract Document form. Only 1% used the ConsensusDOCS Green Building Addendum. And such may be among the biggest ‘takeaways’ from this review; had the parties utilized a correct and complete AIA Sustainable Project Contract Document or the ConsensusDOCS Green Building Addendum there would be no blog post and the green building matters would have been adequately addressed. But such was not the case, ..
The errors in the contract documents, most simply put, were all over the board. The single most common error can be characterized as a failure to articulate the obligations of the parties related to the green building standard being pursued (i.e., whose obligation is achieving a specific LEED credit?). Unbelievably, 28% of contracts failed to even mention that a green building standard was being pursued, although some of those did have green building requirement described within specifications in contract drawings. More than 60% of that subset was in jurisdictions with a mandatory green building law creating liability for the architect among others.
Statistically, the next most common failing, in more than 22% of contracts reviewed, was allocation of who was responsible for achieving a green building standard (e.g., which by default in most projects reviewed resulted in achieving a green building the obligation of the general contractor).
In another error, in nearly 20% of contracts reviewed, the design professional failed to articulate its role in a green building project. Shockingly, more than 50% of contracts reviewed between an owner and architect were silent, in all material ways, as to the need to achieve green building status, despite that the project was a green building project. In some of those instances, the parties used an AIA Contract Documents form (the wrong form) but not a Sustainable Project form.
While there has been relatively little litigation over green building, construction industry professionals should be cognizant of the Federal court judgment last year and associated multi Million dollar settlement of the disputes over the first LEED Platinum building involving specifying new or untried materials and products (that are often the keystone of green building). At its core this was a case arising from improperly specified material. The case instructs there is no more liability arising from green building versus other construction, but that the liability is different.
New or untried materials and products comes with unique risks; and in that case arose even before the current emerging era of expanding liability arising from environmental product declarations (EPDs) and their high risk cousin, health product declarations (HPDs).
Materialmen and supply contracts are among those most flawed because many of the documents incorporate prime contract documents within their terms, including overly broad liability fior failure to achieve a green building goal.
Surprisingly, less than 20% had properly drafted provisions addressing the disputed green building matter that was the issue resulting in a party to the contract seeking legal advice.
It is beyond dispute that the best way to mitigate risk in a sustainable project is a properly drafted contract. And while this law firm makes a business of drafting and revising contact documents, there are very good contracts available in the marketplace.
We will publish a detailed article about the green building contract deficiencies our study found in the coming days and in future blog posts. But it is time for you to review and consider revisions to your contract document forms.