Green Building Law Update

The Intersection of Real Estate, Science, and Law

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?*

By Chris Cheatham on July 22, 2009 Posted in Codes and Regulations, LEED, Legal Developments, State

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.

Has Canada Figured Out Green Roof Insurance, Eh?

By Chris Cheatham on July 20, 2009 Posted in City, Codes and Regulations

A few weeks ago, Toronto announced a mandatory green roof requirement, which my fellow bloggers dutifully covered. When I read about the green roof mandate, I thought of another Canadian city with a similar program.

You remember the Vancouver Catch-22, right?

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.

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.

When I read about the Toronto green roof mandate, I thought to myself “good for Toronto, they ironed out all of the insurance and liability issues associated with green roofs.”

Not so fast.

Marks says, however, that green roofs built to the Toronto construction standard won’t be able to pass Underwriters Laboratories of Canada’s CAN/ULC S107-03, Methods of Fire Tests of Roof Coverings. “Under the flame-spread test, they shoot a flame across the top of a traditional roofing membrane,” says Marks. “There isn’t one green roof that will pass that test — the vegetation will burn, and the City of Toronto has been aware of this.”

“The insurance industry hasn’t caught up with this yet,” he says. “They may need to experience some losses and claims before clueing in.”

I am no engineer but I am pretty sure grass catches on fire if you shoot a flame at it.

The green building industry is a brave new world. How long will it be before the insurance industry can assess the risks associated with green roofs and projects?

Photo: Earth Hour Global

Real Life Example of the Energy Performance Gap

By Chris Cheatham on July 17, 2009 Posted in LEED, Trends

[Sometimes I get great emails from readers and we discuss a green building topic or blog post. Then I sit on the topic for a while, waiting for the right time to share with the Green Building Law Update readers. Now seems like the right time to share an email I received from a reader.

I received this great email from a reader who manages the operations and maintenance of a LEED Gold Certified building. What follows is his response to my question "how are the green building efforts going?"]

At its best the going is very slow. At its worst… we’re kind of afraid to go. I’m meeting with the building HVAC technician once a week to try & review our LEED report and the 2.1 spec. We have a request in to our boss for information/documentation from the architectural firm that got us certified (M&V plan, etc.). We may or may not be deemed worthy of actually talking to the firm. I’m also putting in a request to purchase the ASHRAE books we seem to need (55, 90.1, etc.). Right now I’m kind of frustrated with two aspects of this whole thing: 1) the lack of resources for anyone inheriting these buildings 2) the lack of clarity regarding who owns what. The HVAC tech & I are pretty sure we’re only verifying we got the building that was sold to us, but we have NO idea exactly how much of this we have to verify, how exactly to verify it, and how much we’ll suffer for calling out anything wrong. State mentality FTL, I know, but blue-collars are that way due to experience.
There’s the geek part of me that wants to set aside a portion of the Web to try and do something about this. But where do I start? My understanding of the problem is so small I can’t even focus on that little nugget I "need to fix". There’s also part of me that really doesn’t care. Chasing unfocused spec with no real understanding of who owns what or who is responsible for what is not something I want to focus my time on. To using a coding analogy (which I’m not even qualified to use)… Right now all I see is a lot of coding framework for very little functional code. I’m not even sure I want to continue coding in this language. I’d rather focus on playing guitar for a weekend band. :p
[This is a perfect example of the green building performance gap. The building may be designed with the most state-of-the-art, energy saving strategies, but no one bothers explaining the operations and maintenance to the operations and maintenance crew. You may recall that the performance gap is what led to USGBC authorizing LEED de-certification. Green building education provided to operations and maintenance staff could go a long way to closing the performance gap.]

Photo: Jim at Sonicchiken

LEED De-Certification Raises Insurance Concerns

By Chris Cheatham on July 15, 2009 Posted in Construction, Design, Insurance, Legal Developments, Surety

[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.

Could LEED NC and LEED EBOM Join Forces?

By Chris Cheatham on July 13, 2009 Posted in LEED, Trends

With the recent announcement that LEED certified projects will have to report energy performance data, the USGBC has signaled its intent to take on under performing green buildings. LEED 2009 requires the reporting of energy performance data, but does not include actual energy performance requirements. I have no doubt that the USGBC will require some minimum levels of actual performance in the next version of LEED.

Just look at the USGBC’s recent press release (PDF):

USGBC will be able to use the performance information collected to inform future versions of LEED.

“Building performance will guide LEED’s evolution. This data will show us what strategies work – and which don’t — so we can evolve the credits and prerequisites informed by lessons learned,” said Brendan Owens, USGBC’s vice president of LEED technical development.

I guess it is prediction time. At the very least, the next version of LEED will require more post-construction, post-substantial completion strategies for certification.

Or the USGBC could simply merge two rating systems: LEED for New Construction with LEED for Existing Buildings Operations and Maintenance (LEED EBOM). With LEED 2009, the two rating systems are already on the same point scale. And one of the ways to comply with Minimum Project Requirements is to achieve LEED EBOM certification every two years.

What opportunities and pitfalls does this approach present?

How I Learned to Stop Worrying and Love LEED De-Certification

By Chris Cheatham on July 10, 2009 Posted in Construction, Design, Insurance, Legal Developments, Surety, Trends

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

By Chris Cheatham on July 8, 2009 Posted in Construction, Design, Insurance, Legal Developments, Surety

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

By Chris Cheatham on July 6, 2009 Posted in Legal Developments, Trends

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!

By Chris Cheatham on July 3, 2009 Posted in Legal Developments, Trends

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.