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American Bar Association Forum on the Construction Industry 2013 Mid Winter Meeting. Project Not Green Enough? What types of green $$$ can an owner recover? . Angela R. Stephens, LEED AP +BD&C, GA-CR ® Stites & Harbison, PLLC Chris Cheatham ClaimKit. Overview .

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project not green enough what types of green can an owner recover

American Bar Association

Forum on the Construction Industry

2013 Mid Winter Meeting

Project Not Green Enough? What types of green $$$ can an owner recover?

Angela R. Stephens, LEED AP +BD&C, GA-CR®

Stites & Harbison, PLLC

Chris Cheatham

ClaimKit

overview
Overview
  • Growth of Green Building
  • Lack of Litigation
  • Developments increasing likelihood of suits
  • Claims, Green $$$ Damages
  • Ways to Reduce Risks
why go green

Environmental

Economic

Social

WHY GO GREEN?
  • Energy/Operational Cost Savings
  • Tax Incentives
  • Financing
  • Healthier Workspace
  • Increased Productivity
  • Positive Press
  • Better for Environment
willis tower
Willis Tower
  • $350M Renovation
  • Cut electricity use by 80%
  • Save 24M gallons of water each year
empire state building
Empire State Building
  • $20M Renovation
  • Cut energy costs by 38%
  • Seeking LEED Platinum Status
why the lack of litigation1
Why the lack of litigation?
  • Lack of Enforcement
    • By USGBC
    • By Owners
  • Once certified . . . Always certified.
northland pines high school usgbc internal dispute resolution
Northland Pines High School (USGBC Internal Dispute Resolution)
  • H.S. bldg committee alleged award of LEED Gold was not justified
    • Complaint with USGBC
    • Claim - failed to satisfy energy and atmosphere prerequisites
  • USGBC hired two engineering consultants to review credits issued
  • Appeal Denied
why the lack of litigation2
Why the lack of litigation?

Recession

Lack of assets to fight.

regulations that may lead to claims
Regulations That may lead to claims. . .

State Laws

Codes

Incentives

Fed. Laws

state of arizona executive orders 2005 05 2008 29 2 11 05 12 16 08
STATE OF ARIZONA:EXECUTIVE ORDERs 2005-05 2008-292-11-05 / 12-16-08

State Funded Buildings:

Design and construct to derive 10% of their energy from a renewable resource.

Meet energy efficiency standards established by law.

LEED Silver

failure to achieve certification required by state law
Failure to achieve certification required by State Law?
  • Common law
    • Breach of contract
    • Breach of warranties (express and implied)
  • Majority of States - No express damages
slide17

Potential Green $$$ Damages

  • Failure to achieve certification required by State Law?
    • Cost to repair v. diminution in value
    • Operational costs
    • LEED Certification Premiums paid
      • Construction or Design Team
    • LEED Certification fees
calgreen july 17 2008
CALGreenJuly 17, 2008
  • Effective 1/1/11:
    • Reduced water use
    • Reduced energy use
    • Use of recycled materials
    • Applies to residential construction
ashrae 189 1p high performance green buildings
ASHRAE 189.1PHigh Performance Green Buildings
  • AHSRAE, USGBC, IESNA
  • Applies to all buildings except low-rise residential
  • Similar to LEED
international green construction code
International Green Construction Code
  • Application
    • Sale of Property**
    • Change in Occupancy
    • Repairs/Renovations
      • Even in minor – HVAC and energy reqs
    • Not for residential
  • ASHRAE 189.1 path
federal codes and mandates
Federal Codes and Mandates
  • Executive Order 13514 – Net Zero by 2030
    • All federal agencies
  • GSA currently requires LEED Gold
  • Creation of Own Code?
slide23

Potential Green $$$ Damages

  • Failure to achieve certification required by Codes?
    • Penalties – each day separate offense
    • Misdemeanor or civil infraction
    • Reasonable Attorney’s fees
    • Plus . . .
slide24

Potential Green $$$ Damages

  • IGCC Optional Ordinance – if adopted – forfeiture of:
    • Performance Bond
    • Irrevocable Letter of Credit or Cash
    • Plus . . .
slide25

Potential Green $$$ Damages

  • Cost to repair v. diminution in value
  • Operational costs
  • LEED Certification Premiums paid
    • Construction or Design Team
  • LEED Certification fees
green bonds
Green Bonds
  • San Mateo, CA
    • Commercial or industrial buildings > 3000 sq ft
    • $5,000 bond
    • If don’t comply = forfeiture
green bonds1
Green Bonds
  • Miami, Florida
    • All new buildings more than 50,000 sq ft
    • Amount of performance bond based on sq ft
      • 50,000 – 100,000 = 2% total cost of construction
      • 101,000 – 200,000 = 3%
      • > 200,000 = 4%
green bonds2
Green Bonds
  • Washington D.C. Green Building Act
    • 2012 – LEED Certification
    • nonresidential and post-secondary educational facilities
    • Failure to achieve:
      • Forfeit Performance Bond up to $3,000,000.00
      • Plus fines by Mayor
tax incentives
Tax Incentives

www.dsireusa.org

tax incentives1
Tax Incentives
  • Nevada - Property tax abatements:
    • LEED Platinum = abatement 35% of taxes imposed
    • Gold = 30%
    • Silver = 25%
  • New Mexico – tax credits
    • LEED Silver = $3.50 / sq.ft.
    • LEED Platinum = $6.25/ sq.ft.
slide32

Potential Green $$$ Damages

  • Failure to achieve certification?
    • Lost tax incentives
shaw development v southern builders
Shaw Development v. Southern Builders
  • $7.5 Mill – 23 condo units
  • Attempting LEED Silver
  • Owner sought $635,000 in lost tax credits under state-level green building program
  • Case settled
slide36

Architect = LEED AP

    • manages the LEED documentation
    • prepares LEED Certification Plan
      • ID’s participants and their roles.
      • crucial in any contract
  • Green “goals” - not mandates
slide37

Owners may point to:

2007 AIA Code of Ethics - CANON VI

  • Members should promote sustainable design and development principles in their professional activities.
  • Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.
slide38

Or point to:

2007 NSPE Code of Ethics

  • Engineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.
slide39

Potential Green $$$ Damages

  • Failure to achieve green goals under B214?
    • Contract Silent
slide40

GBF – Only party liable??

    • Article 7.7 - Project Participants shall perform elected green measures identified as their responsibility
    • Article 8.3 – No Project Participant other than the GBF shall be liable or responsible for the failure to achieve Green Status
slide42

Potential Green $$$ Damages

  • Failure to achieve Green Status under CD 301?
    • Refer to underlying contract
    • If waived in contract, lists consequential damages that are waived:
      • Lost profits
      • Increased operating and maintenance costs
      • Lost tax incentives
      • Lost marketing opportunities
slide43

Owner and DB can agree to incorporate sustainable elements or achieve a designated level of certification

  • Contains a Remedies Section
    • Parties agree to appeal – pd for by Owner
    • Selection of Remedies
slide44

Potential Green $$$ Damages

  • Selection of Remedies under DBIA Exhibit?
    • Waiver
    • Liquidated Damages – sole remedy
    • Limited Obligations to Cure – max $$$
      • Remaining contingency
      • Share of savings (if GMP contract)
      • Set amount
destiny usa
Destiny USA
  • Biggest and most environmentally friendly structure
  • $2 Billion in Green Bonds from US Treasury
destiny usa1
Destiny USA
  • $238 Million in Green Bonds from Syracuse Industrial Development Agency
    • Private investors purchased in exchange for:
      • Interest
      • Tax free status on interest
    • Developer received tax-free loan
      • $120 Million in savings
destiny usa2
Destiny USA
  • To get $238 million in Green Bonds :
    • “demonstrate, and provide written assurances” that the project would receive LEED certification.
    • project had to include “a brownfield site”
    • meet “goals for conservation and technology innovation.”
      • Reduced electric consumption
      • Reduced sulfur dioxide daily emissions
      • photovoltaic capacity
      • fuel cell energy generation capacity
slide49

Destiny scrapped renewable energy features

  • No plant running on biofuel
  • No expansive solar panels
slide50

http://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.htmlhttp://www.syracuse.com/news/index.ssf/2012/03/irs_says_destiny_usa_green_bon.html

Bonds not dependent on actual achievement of green building and renewable energy goals

slide51

Potential Green $$$ Damages

  • If IRS had a different ruling?
    • Forfeit $2.38 M in developers reserve fund
    • Revoke tax exempt status - $120 M savings
    • Revoke tax exempt status from investors
      • MESSY
slide52

1st to obtain LEED Platinum Certification

Parallams exposed to the weather . . .

chesapeake bay
Chesapeake Bay
  • 2003 – water intrusion
  • 2009 – widespread rot
    • Parallams not treated properly
    • or treatment not suitable
  • Foundation, architect and contractor settled and sued Parallam supplier
    • Breach of contract
    • Indemnity
    • Contribution
    • Negligent misrepresentation
    • Negligence
slide54

Potential Green $$$ Damages

  • Demand to Parallam supplier = $6 M in damages
    • Investigation
    • Removal and replacement
    • Lost revenue
    • Loss in value of Center
    • Attorneys fees
chesapeake bay1
Chesapeake Bay
  • Action dismissed - statute of limitations
gidumal1
Gidumal
  • Marketed as LEED Gold Building
    • Cutting edge green technology
  • Complaint
    • Not enough energy savings
      • = additional costs
      • = decreased unit values
slide59

Building Not Green Enough?

  • Cost to repair v. diminution in value
  • Operational costs
  • LEED Certification Premiums paid
  • LEED Certification fees
  • Code penalties
  • Attorneys fees
slide60

Potential Green $$$ Damages

  • Forfeiture of:
    • Performance Bond
    • Irrevocable Letter of Credit or Cash
slide61

Potential Green $$$ Damages

  • Lost tax incentives
  • Lost marketing opportunities
slide62

Potential Green $$$ Damages

  • Liquidated Damages – sole remedy
  • Limited Obligations to Cure – max $$$
    • Remaining contingency
    • Share of savings (if GMP contract)
    • Set amount
slide63

Potential Green $$$ Damages

  • Investigation costs
  • Lost revenue during renovations
  • Reduced rental rates
  • Financing costs
what does this mean

What does this mean?

New Risks?

Clients on a tight rope?

Tips to minimize the risks.

legal issue 1 express warranty
Legal Issue #1. Express Warranty

Don’t guarantee:

“reduce operating costs”

“healthier and more productive occupants.”

slide67

Express Warranty

Do Not

Guarantee

Level of

Certification

1 minimize risks
1. Minimize Risks:
  • Do not guarantee certification
    • It is a Goal, Not Promise
    • Except as required by law.
  • Warrant that Work will be in accordance with:
    • The Contract
    • Industry Standards
slide69

LEGAL ISSUE #2: Implied Warranties

Marketing Efforts:

  • Energy/Operational Cost Savings
  • Healthier Workspaces
  • Increased Productivity

Can these claims be verified?

legal issue 2 potential actions for over promising
LEGAL ISSUE #2:Potential Actions for Over-Promising:
  • Fraud
  • Negligent Misrepresentation
  • False Advertising (Lanham Act/FTC)
    • FTC Green Guide
  • Consumer Protection Acts
gifford v usgbc
Gifford v. USGBC
  • False Statements:
    • §43(a) of the Lanham Act
    • Deceptive trade practices (under New York law).
    • New York’s False Advertising Act,
    • false advertising, unfair competition, and unfair business practices under the common law.
gifford v usgbc1
Gifford v. USGBC
  • LEED buildings use less energy
  • “LEED is providing third-party verification that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings”
  • LEED-certified buildings and other allegedly “green buildings” “Boost Employee Productivity.”
legal issue 2 how can you minimize risk
LEGAL ISSUE #2:How can you minimize risk?
  • Manage expectations -Don’t over-promise
  • Disclaim promises – “All warranties are limited to those expressly stated in the Contract. No other warranties, written or implied shall be binding or enforceable against _____________.”
legal issue 3 standards of care
LEGAL ISSUE #3: Standards of Care
  • Will you be held to higher standards of care?

Architects/Engineers – suppose to promote sustainable design and construction

legal issue 3 what can you do to avoid being held to a higher standard of care
LEGAL ISSUE #3:What can you do to avoid being held to a higher standard of care?
  • Identify the standard of care:
    • ______ shall not be held to a heightened standard of care on the Project.
    • The ____ shall perform its services consistent with the professional skill and care ordinarily provided by ___ in the same or similar locality under the same or similar circumstances.
slide77

LEGAL ISSUE #5:Identify Participants, Their Roles and Responsibilities.

  • No One Party Control of Points/Goals
  • Obtain buy-in of all effected parties
legal issue 5 identify participants their roles and responsibilities
LEGAL ISSUE #5:Identify Participants, Their Roles and Responsibilities

Add this to LEED Addendum

slide80

LEGAL ISSUE #6: Insurance

  • Questions over Insurability of LEED projects
  • Contracts agreeing to provide insurance that is not available
  • See your agent
slide81

LEGAL ISSUE #7: LEED Certification Documentation

  • .
  • Find a dedicated professional
  • Delineate responsibilities in the contract
slide82

LEGAL ISSUE #8: Delays

  • Green materials - availability
  • Skilled workers
  • Longer durations for installation of new technologies
  • Time to obtain certification from USGBC
    • Necessity of Appeal of Ruling
slide83

LEGAL ISSUE #8: Delays – What can you do?

  • Limit responsibility
  • Include a Force Majeure clause
slide84

LEGAL ISSUE #8: Delays – What can you do?

  • Define Substantial Completion
    • Don’t make SC dependent upon achieving LEED Certification
  • Waive Consequential Damages
legal issue 9 green materials methods
LEGAL ISSUE #9:Green Materials/Methods
  • Long-term maintenance issues
    • Who is responsible for maintenance?
    • What happens if mfg goes out of business
    • What happens if component malfunctions?
  • Provide a Notice and Opportunity to Cure clause in your contract.
legal issue 10 ve and changes
LEGAL ISSUE #10:VE and Changes
  • VE and Change Orders may effect the ability to achieve certain points or green measures.
  • A/E or LEED AP should review changes to plans (COs/ VE) to see how goals are affected.
    • May want to consider establishing time frame for review and approval of COs
legal issue 11 leed ap liability
LEGAL ISSUE #11:LEED AP Liability

If LEED AP is an independent party?

No assets? No insurance coverage?

What can you do?

  • Talk with owner regarding LEED AP selection.
  • Ask whether the LEED AP is insured.
legal issue 12 computer modeling
LEGAL ISSUE #12:Computer Modeling
  • Define source of standards and data to be used for computer modeling.
  • Do not guarantee that the building will perform in accordance with the models.
legal issue 13 leed appeals
LEGAL ISSUE #13:LEED Appeals
  • Be aware of time limitations established by GBCI
    • 25 business days to appeal the results of the Final Review
slide90

LEGAL ISSUE #13:Specify who will pay for LEED Appeals

“___ shall not be responsible for any costs associated with the appeal of any LEED Credits.”

$500 per credit appealed

legal issue 15 payment
LEGAL ISSUE #15:Payment
  • Certification level may take months.
  • Don’t tie payment to the achievement of a certain certification level
    • Owners may insist on withholding some retainage until all paperwork and appeals processes are complete.