This is a follow-up article to a March 11, 2010 article titled “LEED Certification May Not Last.”
Achieving LEED certification provides benefits to society by way of recycling and reducing energy consumption. However, entering into a contract for “green” construction carries risks for owners, design professionals, and contractors. This article will highlight what parties can do in an attempt to minimize the risks of failing to achieve contractually-required LEED certification and minimize the risk of losing certification.
In 2009, Wisconsin residents filed a 125-page complaint with the United States Green Building Council (USGBC) challenging the LEED gold certification granted to Northland Pines High School in 2007. This challenge stemmed from the 2009 revision of the LEED certification framework. While the allegations for decertification for this case are as yet unknown, this case has raised questions but few answers so far for the decertification of any green project. States and municipal governments that impose LEED requirements on construction may have to consider enacting statutes or ordinances with penalties for decertified facilities. Also, these actions have called into question as to whether construction professionals will be able to rely on USGBC decertification precedents in planning future LEED projects. However, the USGBC does not routinely monitor or police projects to determine if LEED certification has been maintained due to the USGBC’s limited resources.
An actual statute mandating green construction was enacted in Washington, D.C. In 2007, the Green Building Act was passed in the District of Columbia phasing in green building requirements over a five year period. The Green Building Act contains a performance bond requirement guaranteeing that green requirements for construction are met on a project. The Green Building Act establishes the required face amount of the bond which, after 2012, will range from two to four percent of the total cost of the building, but not to exceed $3 million. Thus, for a $25 million building commenced after 2012, failure to achieve the required LEED certification level would result in a forfeiture by the contractor of a $500,000 bond.
Governments and owners can consider imposing a similar bonding requirement for their LEED intended projects. Such a bond is not necessarily intended to insure against nonperformance, but against noncompliance with the LEED certification requirements. The cost of such a compliance bond can be negotiated among contracting parties. Governments may also want to consider inserting bond requirements in their green and alternate energy ordinances.
Contractors will also want to be protected against the failure of a project to achieve LEED certification. Contractors should pay particular attention to bid documents and contract terms and conditions to insure responsibility for performance is clearly delineated. Contractors have to be concerned in providing proper building materials and proper construction techniques to avoid being assessed cost differences should their work and materials be found deficient for achieving LEED points or certification. Contractors should also explore with their insurance carriers coverage for LEED-related events. Though insurance products are not fully developed for addressing LEED issues, one tool might be to contractually include a liquidated damages clause for failure to achieve the contractually required LEED certification. Insurance coverage may then be available for that potential liquidated damage exposure. Contractors should consider proposing a compliance bond for the project with appropriate cost sharing between the owner and contractor.
LEED construction involves big money, new construction techniques, and expected cost savings for the future life of a project. LEED construction is also relatively new, though growing in acceptance and performance. As such, construction professionals should welcome participating in such projects, but take appropriate steps to protect themselves should LEED certification not be achieved.