Smart Contracting For Green Design And Construction

by Pepper Hamilton LLP
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This article was first published in the February 20, 2013 issue of Green Building News (http://www.greenbuildingnews.com/articles/2013/02/20/smart-contracting-green-design-and-construction). It is reprinted here with permission.

Successful green building requires more planning and, preferably, a greater degree of integration in overall project delivery, than building without green objectives. All of the major third-party green certification systems — including LEED, Green Globes and Designed to Earn the Energy Star — have recognized this, as have numerous agencies of the federal government, which has been a leader in studying and promoting green building.

But, despite this acknowledgement, many parties continue to use contracts that include no specific provisions addressing critical green issues, such as: how a project’s green goals will be defined and integrated into the overall project requirements; how the parties will determine the specific green measures to be taken to achieve those goals; who is responsible for determining the goals, means and methods, and then for carrying out the green measures; and who is responsible, and to what extent, if the project’s green goals are not achieved.

A prime example of this kind of contractual deficiency is provided by the green litigation case, Southern Builders Inc. v. Shaw Development LLC. Southern Builders arose from a project to build the Captain’s Galley Luxury Condominiums, a 23-unit condominium and restaurant project in Somerset County, Md. The manual for this project included a statement that it was to comply with LEED Silver certification requirements. But the contract documents apparently omitted to mention that the developer had applied for, and relied on obtaining, a Maryland state tax credit that was dependent on the project’s achieving a LEED Silver rating within a certain period of time. Nor did the parties modify the American Institute of Architects (AIA) contract forms to address how the project team would achieve the targeted Silver rating or who would be liable if the goal was not met.

The project was delayed, the developer apparently missed the deadline by which LEED Silver certification had to be achieved, and the developer lost the anticipated tax credit. When the contractor later sued the developer for unpaid balances and to enforce a mechanic’s lien, the developer counterclaimed, alleging that the contractor had failed to “construct an environmentally sound green building, in conformance with a Silver Certifications Level according to the U.S. Green Building Council’s …LEED Rating System.”

Based on this allegation, the developer claimed $635,000 in damages from the contractor — the amount of the tax credit the developer had failed to obtain. The case ultimately settled and so provided no case law guidance on green liabilities in such a situation. But groups — including the AIA — are keenly aware of the need for contract language to address green project issues.

In May 2011, the AIA, a proponent of both integrated project delivery and of green building, sought to address fundamental green contractual issues in AIA Document D503-2011, Guide for Sustainable Projects, including Agreement Amendments and Supplementary Conditions. The D503 serves as an educational tool for owners, designers and contractors. It includes discussion of “key issues related to [the] roles, responsibilities, risks and opportunities” inherent in green building. The guide also includes model language that can be incorporated into three of the AIA’s most frequently used forms of contract document: the AIA Document A101-2007, Standard Form of Agreement Between Owner and Contractor, AIA Document A201-2007, General Conditions of the Contract for Construction, and AIA Document B101-2007, Standard Form of Agreement Between Owner and Architect.

In May 2012, the AIA issued Sustainable Project (SP) versions of the A101, A201 and B101, and also of AIA Document A401-2007, Contractor/Subcontractor Agreement and AIA Document C401-2007, Architect/Consultant Agreement. These five new SP forms of agreement are essentially the 2007 editions of specified AIA contracts, but modified to include provisions that specifically address green project issues. The salient changes in all of the documents include:

  • requiring the architect to conduct a sustainability workshop with the owner and relevant consultants, the product of which is a written sustainability plan identifying the owner’s sustainable objective for the project, outlining the sustainable measures that will be implemented and allocating responsibility for each sustainable measure to a specific project team member
  • providing for further development of the sustainability plan as the design progresses, and for including the sustainability plan as a formal contract document
  • defining sustainability services that the architect will perform, including acting as the owner’s agent for registering the project for third-party green certification, collecting and organizing the necessary documentation for certification and making necessary filings with the third-party certifier.
  • limiting the architect’s responsibility for specifying green products with a limited track record for the project, by requiring that the architect disclose information about the limited track record, but making clear that the architect has the right to rely on the manufacturer’s representations about the product if the owner elects to allow the product to be used.
  • requiring that a contractor proposing product substitutions include in its proposal a written representation on the potential effect the substitution may have on achieving a sustainable measure or sustainable objective and specifying that the architect is entitled to rely on the representation.
  • confirming that substantial completion continues to occur when the project is ready for use for its intended purpose — even though LEED, other third-party certifications or other sustainable objectives may not be achieved until well after the project is physically complete and ready for occupancy and even though the contractor or other parties may continue to have documentation, testing or post-occupancy commissioning duties after the project is physically complete and put into use.
  • disclaiming any warranty by the design professionals, contractor or subcontractors that the sustainable objective will be achieved.
  • modifying the existing waiver of consequential damages to make clear that damages due to unachieved energy or other resource savings, unintended operating expenses, lost financial or tax incentives or unachieved gains in worker productivity, due to failure to achieve a sustainable objective or sustainable measure, are all consequential, not direct and are all waived.

The AIA’s new SP documents are intended for use on design-bid-build projects — rather than design-build or other, more integrated project delivery methods that are widely recognized as more suitable for promoting success in greening a project. As a result, the documents contemplate that the sustainability plan will be developed without the participation of the project’s contractor who, in a design-bid-build project, is not hired until after both the sustainability plan and the project design are completed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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