You Are a Project Owner or Developer Who Wants to Build a Green Project? So, What Do You Actually Put in Your Contracts?

Despite the explosion of articles, seminars and webinars on green building and development during the last year or so, there is a dearth of information in the development world regarding what project owners and developers who do want to build a green project should actually put in their design and construction contracts.

Here is what I think is important regarding this subject:

 

General Green Building Certification Goal. The project owner first must decide in general what green building goal it wants to achieve. LEED certification (from the US Green Building Council), at a particular certification level (general, silver, gold, platinum), is an obvious option. But there are other general green building certifications, too, such as Green Globes (Green Building Initiative) and SBTool07 (International Initiative For a Sustainable Built Environment), as examples. The owner should make this basic decision early on, based on good information and analysis and the advice and recommendations of design and green building consultants, as applicable.

 

Industry-Specific Green Building Certification Goal. Deciding on an overall green building goal such as a LEED certification is not the only certification goal a project owner should consider, however. There also is a growing number of industry-specific certifications that the owner should evaluate, depending on the nature of the project and the owner’s business. For example, there are certifications available for health facilities (Practice Greenhealth), restaurants (Green Restaurant Association) and hotels (Hotel Pure Green). How important an industry-specific certification of this type is to an owner is a question to be addressed at the start of the design process.

 

Tax and Other Governmental Incentives Goal. Another element of green building goals to be considered is tax and other governmental incentives relating to green building. Particularly in Oregon and under new federal stimulus legislation, there may be tax credits, grants and other public sector incentives for green, sustainable and energy efficient construction that can be of substantial benefit to a project. However, these incentives must be identified as project goals early in a project’s design in order to ensure that the owner is able to take advantage of them.

 

Making Green Building Goals Explicit. Once an owner has sorted through its optional goals for LEED or other general certification, for industry-specific certification and for tax and other governmental incentives, these goals should be expressly set out in the owner’s design and construction contracts. Otherwise, the owner’s architect and contractor will not have any contractual obligations to achieve the owner’s green building goals. Typical form contracts, including 2007 American Institute of Architects (“AIA”) forms of contract, include minimal references to these kinds of obligations and do not include language in which to make the goals explicit. 

Care in Phrasing Architect’s Green Building Obligation. Particular care should be taken in describing the green building goals in the owner’s contract with its architect, however. The reason is that if achievement of the goals is stated as absolute obligation on the part of the architect, such an obligation would be viewed as a “warranty”—and under the typical professional liability insurance policy, there likely would be no insurance coverage should the architect fail to achieve the goal. From this perspective, the better approach is to include contract language that obligates the architect to “endeavor to achieve” the owner’s green building goals “consistent with the applicable standard of care”. Using these phrases, the architect’s failure to achieve the goals could be viewed as a result of negligence—the resulting damages likely being covered under the typical professional liability insurance policy. 

Green Building Decision-Making Process. The owner’s contracts with its architect and contractor should include language, either in the contract or by means of a free-standing exhibit or other document incorporated into the contracts, setting out an agreed process whereby design (and even construction means) decisions are made to achieve the owner’s green building goals. A key to any such process is for the owner to be involved directly, early and on a continuing basis. Otherwise, basic decisions regarding the design of the building—such as its orientation, layout, materials and other design elements—may be driven by the need to achieve the owner’s green building goals yet the owner may not be meaningfully involved in the decision-making process. Although an uninvolved owner may have the right to change such preliminary design decisions later in the process, such changes could involve redesign costs and projects delays. There is an AIA form, AIA Document B214 – 2007 Standard Form of Architect’s Services: LEED Certification, which sets out this kind of process. (The B214 form does not anticipate inclusion of an explicit statement of the owner’s green building goals, however.)

 

Effects of Limitation of Liability Provisions. Given the damages that an owner might incur should its green building goals not be met, it is important for a project owner to be careful about generic contract terms that might deny or minimize its recovery of such damages. The waiver of consequential damages provision in unamended AIA design and construction contract forms, for example, can result in denying an owner the ability to recover lost sales, rents, goodwill, and tax and other incentives occurring if an owner’s green building goals are not met, or are met late. A limitation of liability provision, not uncommon in design professional contracts, can place a severely limiting cap on the amount of damages of all types that an owner is able to recover should its green building goals not be achieved.

 

These are some examples of the kinds of contract drafting issues that should be addressed for any project owner wanting to build a green or sustainable project. By carefully addressing these kinds of contract issues at the front end of the contracting process, disputes and inadequate owner remedies can be avoided later.

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