Adam Richins
Adam Richins is an associate in the firm’s Litigation group. Adam represents and counsels clients in construction, design, energy, technology and environmental matters. He has significant field experience in civil engineering and project management in both the public and private sectors. Before joining Stoel Rives, Adam worked in the construction industry in Alaska, Washington and New York. His experience includes managing the design, coordination and installation of the 100 percent in-line security screening system at Sea-Tac Airport; developing and maintaining the master schedule for construction of over 20 public schools in the New York metropolitan area; and performing cost analysis and estimation for two university projects.
One to Watch: BIAW Sues to Stop New Washington Residential Energy Efficiency Standards
In November 2009 the Washington State Building Code Council (“WSBCC”) approved amendments to the Washington State Residential Energy Code imposing additional energy efficiency requirements for newly permitted homes. The controversial changes, found in Chapter 9 of the new Code, are scheduled to take effect on July 1, 2010.
The new regulation at issue requires that “Dwelling units permitted under this Code shall comply with all provisions of Chapter 5 of this Code [building component performance requirements] and develop 1 credit from Table 9-1.” The requirements thus apply to both new residential units and additions to existing units. Table 9-1 contains a list of 13 options for achieving energy efficiency in newly permitted homes each of which qualify for between .5 and 2 credits and some of which must be combined with other listed options to qualify. Most of the options involve increasing the efficiency of HVAC systems, while others address things such as building envelope efficiency, water efficiency and on-site generation of renewable (solar or wind-generated) energy.
Various members of the Washington building industry have strenuously objected to the new regulation on the grounds that it will add to the cost of new homes built in Washington, therefore making them more difficult to sell in a down real estate market and ultimately harming the state’s building industry.
On May 25, 2010, the Building Industry Association of Washington and various building industry participants consisting mainly of residential builders and HVAC consultants and equipment suppliers, sued the WSBCC in the U.S. District Court for the Western District of Washington (Case No. 3:10-cv-05373-RJB). The complaint requests a temporary injunction prohibiting the State from implementing the new regulation and a declaration that the regulation is unconstitutional.
The Plaintiffs contend that the new energy efficiency regulation violates both the Supremacy Clause (Article VI) and the Interstate Commerce Clause (Article I, Section 8, cl. 3) of the U.S. Constitution. The primary argument set forth in the complaint is that the new regulation has the effect of imposing more stringent energy efficiency standards than those imposed under federal law, and is therefore in contravention of the Supremacy Clause in that such regulations are preempted by the federal Energy Policy Conservation Act of 1975 (EPCA) and similar acts.
Table 9-1 does not directly impose standards higher than those imposed under federal law, but the plaintiffs argue that many of the options listed are impractical and effectively force home builders and buyers to select expensive HVAC, water heating and plumbing equipment that exceeds federal standards, thus contravening the EPCA and adding between $4,000 and $15,000 to the cost of a new home.
The EPCA prohibits states from imposing higher energy efficiency standards than those imposed under the Act but also includes exceptions, including one allowing states to enact performance-based building codes that provide multiple options for compliance.
In response to the complaint, WSBCC may argue that Chapter 9 meets the performance-based building code exceptions of the EPCA and other relevant federal laws, that Table 9-1 provides a number of different ways to achieve one credit of additional energy efficiency, that the options are not impractical or unduly burdensome and/or that the plaintiffs’ allegations regarding the impact on the industry and the cost of new homes in Washington are exaggerated.
The plaintiffs’ complaint spends little time on the Commerce Clause argument, which is that the new regulation will disadvantage the residential building industry in Washington as compared to competitors doing business in other states that have less stringent regulations.
The plaintiffs’ Supremacy Clause argument should garner the most attention from the court and it will be interesting to see how the case is decided. The decision may come down to a factual analysis of the various options set forth in Table 9-1. Although the complaint addresses several of the allowed options, it provides little detail as to why the options are impractical. For instance, the complaint states, without further discussion, that the renewable energy options “are simply not viable for many homes/home sites.” Such factual issues should provide a fertile battleground for the litigants.
As of the date of this Blog, the court has not yet ruled on the request for temporary injunction pending the outcome of the proceedings; however, this may become a moot issue, as it appears that Governor Gregoire has requested that implementation of the new standards be delayed by nine months.
Whatever the outcome, this case is certain to have widespread implications for the Washington residential building industry and could set an important precedent for other states wishing to impose new residential energy efficiency standards.
Adding an "O" and "F" to the DB process
The design-build (DB) process is no longer a novelty. In the past ten years, contractors and engineers have fine-tuned the DB project delivery approach, utilizing it to build bigger and better structures at reduced costs.
As the demand for public infrastructure continues to increase and the funds to pay for public infrastructure continues to decrease, a “new” process is gaining momentum in the construction industry in the states (it’s been around for awhile outside of the US). We are starting to see more projects that add an “O” and “F” to the DB acronym.
The DBOF process involves a public-private partnership whereby the private entity designs, builds, operates, and finances a facility. In return, the public entity pays fees throughout the life of the project, often extending 30 years.
When done correctly, the DBOF process can be a win-win for all parties. However, public and private entities should be aware of the issues that can arise with these agreements. Among other things, these issues include the following:
1. Legal challenges related to the public entities ability to pursue such a project delivery approach under the law.
2. Potential opposition from unions.
3. Lack of competition in the bidding arena because only a few entities perform such work.
4. Risks related to the financial demise of the private company.
5. High transaction costs related to the complex nature of these arrangements.
Default on Skyscraper Punctuates Dreary Outlook for Commercial Construction in Seattle
It is no secret that the commercial real estate market has been one of the biggest losers of the great recession. Seattle is no exception and as if to belabor the point, it has been reported this week that Beacon Capital Partners, the owner of Seattle’s icon skyscraper, the Columbia Center, missed its $1.65 million loan payment this month.
At 285 meters high the 76-story building formerly known as Bank of America Tower and Columbia-Seafirst Center (but long referred to by locals as Columbia Tower) not only looms large over the Seattle skyline but also carries the distinction of being the tallest building West of the Mississippi River by number of floors. However, bigger is not always better, as the Seattle Times reports that the tower is nearly forty percent vacant and Puget Sound Business Journal points out that the situation will only get worse as Amazon recently announced that it is taking its sizable ball (230,000 Square feet of leased office space in the tower) and going home, that is, to its new digs in South Lake Union courtesy of landlord Paul Allan. This comes on the heels of Columbia Center’s loss of one of its largest and oldest tenants a couple of years back, mega-firm K&L Gates (formerly Preston Gates and Ellis).
Although speculation is that the loan servicer will likely try to restructure Beacon’s loan, there appears to be little hope on the horizon in the near term for Seattle’s commercial real estate market, which of course means no new commercial construction is in the cards for the immediate future. (A brief look out this author’s window at the Seattle skyline confirms this assessment, revealing but one lonely crane on the horizon).
On the other hand, at least one brave developer is looking on the bright side, as Ed Hewson of HB Capital was quoted today in the Seattle Times saying: "Right now I can get great people to work on all the aspects of the project" in response to a report that HB Capital has filed a preliminary application for city approval of a 200 unit 17-story apartment building at Third Avenue and Cedar in Belltown. (Given the location of the proposed building, the developers should be further encouraged by the Seattle Police Department’s announcement last week that it will be increasing foot patrols in the area).
Be careful what you ask for Idaho
In the last two decades, the Idaho State Legislature has authorized design-build contracting for many different types of public projects. It appears that the Legislature will continue this trend for highway projects. In February, a House committee voted to print a bill that would allow the Idaho Transportation Department (IDT) to award design-build contracts for highway projects. A similar measure nearly became law last year.
For the most part, the Legislature’s acceptance of the design-build process is good thing. Several years ago, I worked for a commercial contractor. In 2001, I visited our largest project at that time -- a $500 M design-build facility in California. When I asked the project lead whether he liked design-build projects, he was quick to praise the process. He believed that design-build projects equated to fast results, decreased change orders, and less litigation. To him, it was a no-brainer. Many of my colleagues agree.
Since then, I have been involved with several design-build and design-bid-build projects. Although some design-build projects have been successful, that’s not always the case. The moment an owner enters into a design-build contract, it loses something that can be very important to a successful construction project: control. This lack of control – which is caused in large part by undefined design requirements – can lead to significant cost overruns and delays.
To avoid such results, owners should focus on two important actions: careful planning and diligent execution. On the topic of planning, design-build owners should spend significant time defining the project requirements. The design-build contract documents must include, among other things, detailed project design criteria, program requirements, performance specifications, and deliverables. Absent such defined requirements, design-builders are free to run wild.
Professional execution of the plan is equally important. Owners must prudently monitor the design-builder’s work. Too often, owners in design-build projects overlook this task, believing that such role is limited in design-build projects. In fact, the opposite is true. Because the design-builder has more flexibility in design-build projects, owners must arduously monitor the budget and schedule.
Design-build projects present many benefits. IDT, however, should know that it will not be less work for them. The key is for IDT to clearly define the project programs and performance requirements before the contracts are signed, and to monitor the design-builder’s compliance with these requirements throughout the project.
LEED Decertification
If you think LEED certification of a building is a one-time deal, think again.
USGBC’s latest version of LEED (version 3) establishes several new changes to LEED certification. Two of those changes are particularly significant. First, USGBC now requires building owners to submit operational performance data on a recurring basis as part of the LEED certification process. Building owners must provide the data for a period of at least five years. Second, and perhaps more important, LEED v.3 gives USGBC the right to decertify projects.
According to the USGBC, building owners can comply with this new data disclosure requirements in one of three ways:
1. Recertify the project on a two-year cycle using LEED for Existing Buildings: Operations & Maintenance;
2. Provide energy and water usage data on an on-going basis annually; or
3. Sign a release that authorizes USGBC to access the building’s energy and water usage data directly from the building’s utility provider.
As to decertification, LEED v.3 provides that certification "may be revoked" from any LEED project upon the USGBC's determination that a building does not comply with several minimum requirements, including environmental law and data disclosure requirements.
The impact of USGBC’s new enforcement right is unknown at this time. Indeed, USGBC has not yet decertified a project. However, one thing is clear: this new system of decertification may put your green investment at risk. Owners should have their attorneys draft contract provisions to protect against these risks during the design, construction, and post-construction stages of a project
The Green Building Bailout
Can green buildings save the economy? Maybe that’s a stretch, but green buildings do play a significant role in the country’s GDP. By 2010, the value of green building construction is projected to be $60 billion. Perhaps more important in these times, the government is recognizing that greening our schools, homes, and office buildings could put thousands of Americans back to work. According to the United States Green Building Council (“USGBC”), President Obama’s economic stimulus plan provides several billions of dollars for (1) modernization of public schools, with preferences or requirements for green improvement projects; (2) green improvements of federal buildings and developments; and (3) block grant funds for states, localities, and tribes for energy efficiency projects. (http://communicate.usgbc.org/newsletters/USGBC_Announcement/01-09.html.)
Given the public money flowing into green building, owners, contractors, and designers would be remiss in ignoring this opportunity.
Green buildings present a great opportunity, but it’s important to remember that this relatively new industry brings its own sets of challenges. To ensure maximum communication between project participants and a successful green project, green building contracts should:
- Clearly delineate each party’s role and responsibility in producing the green outcome or certification desired; wherever possible, the green “outcome” should be reduced to clear, objective and quantifiable standards.
- Require an integrated design process, which brings together all project participants early and often; and
- Mandate projects participants to develop procurement schedules for all green materials being placed into the facility.
