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It would be hard to deny the increased interest in green building or sustainability in the design and construction industry over the last decade or so. From barely 100 projects in 2001 to over 69,000 projects in 2019, the growth in LEED certified buildings is reflected not only in the expanded skillsets across the construction industry, but more importantly, the importance of the issue to owners and operators. 

LEED is not the only green building metric in play. But eagerness to pursue the green route can’t overrule the need to think critically about planning and executing the project with an eye both on meeting the project objectives and on staying out of ‘trouble’ – either during or after the project is done. The LEED rating is applied to a project for successful energy and environmental efforts but only after a building has been completed, so guaranteeing a particular certification level during early stages of the design and/or bidding process can be problematic and is ill-advised. With nine design and performance categories in which a project can be recognized by the U.S. Green Building Council, prioritizing resources and communication during a targeted planning process is essential to achieving more positive project outcomes. 

In green development contracts, driven by incentives ranging from environmental concerns to capturing the market value of LEED certification, initial expectations may create excitement about the project, but these issues can also increase the risk of liabilities for missed opportunities. Green building is an effort that requires buy-in by all the players throughout all phases of the project in order to be successful. 

The unique combination of factors that can impact construction and potential claims, make it all the more important to manage expectations going into the work. The best strategy to approach LEED and green building-related risks, both qualitative and quantitative, is to develop greater awareness of the legal parameters and ramifications of LEED certification and understanding of the risks inherent in the project’s particular circumstances. 

RMC recommends that contractors not overlook these four important contract considerations when moving forward with green building projects.

1. Consequential Damages and Rights

Similar to the potential impacts surrounding delays (increased costs, lost economic opportunities), failure to meet a desired certification level may fall within the definition of consequential damages. Typical AIA contracts contain a mutual waiver of these rights, but it can be worth negotiating a narrower scope that protects the contractor in case of green building issues. 

2. Tax Credits, Zoning Benefits and Similar Incentives

Many municipalities offer incentives for building green, but many of those perks have to be utilized within a fixed time period from application. The upsides of such incentives like tax credits, zoning relief or grant programs is they can nudge an owner or developer towards green; but the potential for any one of those incentives to evaporate can disrupt the financials and instigate disputes and seeking damages. For contractors to properly protect themselves, they should work to include tax credits and grants as part of consequential damages determinations or in a separate clause that clearly represents that submittals are not warranties. 

3. Liquidated Damages

When designating dollar amounts associated with failure to hit certain specific milestone dates on a project, the timelines for certification of green building can have a significant impact. A pretty widely known feature of the market is that rental rates tend to be higher and vacancy rates a little lower for green buildings than non-green buildings. The valuation of potential losses from a missed or late certification can be hard to pin down during initial contract negotiations and that can ultimately put both sides of the table at risk. 

4. Green Building Performance

All project participants can be impacted by the actual performance of the building compared to expectations. LEED now requires that the performance, in the form of operating utility records, be submitted on an annual basis to see how a building is really performing compared to its predictions. Design, construction and operations all intersect on the road to actual performance and real-world data can present a very different picture than model projections. Those variances may give rise to some tense discussions.

Final LEED certification is a result of the sum of components from design to materials to construction techniques to operation, and more tangibly, the actual performance of a green building. Rather than focusing on the environmental success of just one element of a project, contractual agreements should be approached with an eye toward ensuring resources are being best utilized to achieve the shared vision of results. 

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