This article was originally published by the American Bar Association, The Construction Lawyer, Vol. 37, No. 1, Winter 2017. Reprinted with permission.
Sustainable design and construction (otherwise known as “Green Building”) is an evolving and growing sector of the building industry which presents new challenges and legal considerations for the owner (“Owner”), the architect (“Architect”), and the contractor (“Contractor”). Project participants cannot afford to rely on boilerplate contracts that do not specifically address these issues. An owner especially, as the one footing the bill, needs to ensure that its exposure is minimized and that the risk of a project not meeting green goals falls on either the Contractor or Architect. This article reviews the development of the standard American Institute of Architects (“AIA”) contract documents in this area and briefly analyzes the AIA’s Sustainable Project (“SP”) family of standard documents to determine if they satisfactorily protect an Owner’s interests in building a green project. Further, this article highlights some provisions that may need revision if an Owner elects to use the AIA SP documents.
Green Building and a Project Owners’s Goals and Risks on a Sustainable Construction Project
The growth in Green Building has been strong and is expected to continue. For example, from 2011-2014, the green construction market in the United States generated $167 billion in GDP, supported over 2.1 million jobs, and provided $148 billion in labor earnings. Annual green construction spending in the United States is expected to grow 15.1% yearly for 2015-2018, with annual spending projected to increase from $150.6 billion in 2015 to $224.4 billion in 2018. It is predicted that this trend will continue for some time to come, with estimates showing that global green building will continue to double every three years.
Why are developers (Owners) funding Sustainable Construction? The simple answer is demand. In a 2014 Nielsen global survey on corporate social responsibility, more than half (55%) of those surveyed said they would be willing to pay extra for products and services produced or offered from companies committed to positive social and environmental impact — up from 50% in 2012 and 45% in 2011. Upfront investment in green building makes properties more valuable, with an average expected increase in value of 4%, and by virtue of lowered maintenance and energy costs, the return on investment from green building is rapid: green retrofit projects are generally expected to pay for themselves in just seven years. Operating costs have decreased by 13.6% for new green construction and 8.5% for existing building green projects, and building value has increased by 10.9% for new green construction and 6.8% for existing building green projects. In addition, depending on the time and location, Owners of sustainable buildings may benefit from the availability of low-interest loans, tax incentives, and grants. All in all, there are plenty of reasons why developers (Owners) have pursued and continue to pursue the goal of obtaining operable, third-party certified green buildings. The question becomes how they protect themselves from the risks involved with sustainable construction.
The risks the Owner faces if the project does not, in fact, live up to its sustainable aspirations include:
- Failure of a project to achieve certification or an anticipated level of certification. This risk is particularly significant in areas where large new construction projects are required to meet certain sustainability standards.
- Failure to qualify for tax credits that are contingent upon a certain level of certification, or upon certification being achieved within a certain amount of time.
- Failure to meet loan or incentive program requirements if construction is not as “green” as originally planned, where loans or incentive programs are tied to achieving certification or sustainability outcomes.
- Increased soft costs due to delays in construction or requirements for additional documentation (in addition to the already greater up‑front costs of green building).
- Failure to meet anticipated or stated claims in marketing or promotional materials for a development project and possible liability to prospective buyers and/or tenants.
- Failure to obtain expected lower operating costs and savings in energy costs.
- Loss of an Owner’s reputation as a purveyor of sustainable construction.
AIA’s Initial Attempts to Address Sustainability in Its Standard Contracts
Despite the rising popularity of Green Building in the early part of this century, most standard-form construction contracts in the early 2000s, including AIA contract documents, either completely failed to address or inadequately addressed the duties, responsibilities, and risks associated with sustainable builds. Proper risk allocation was difficult, if not impossible, when contracting for Green Building projects.
In the late 2000s, industry participants almost unanimously agreed that “green contracts” should clearly define expectations and the meaning of “green” and/or “sustainability,” and should delineate which, if any, third‑party rating system (and specific version) expressed the project’s desired goals. Experts anticipated that issues would arise with contract specifications and warranty provisions in the realm of risk allocation, that “green” industry standards could be problematic, and that liability for consequential damages and failure to achieve certification would all be issues that needed to be addressed in sustainable construction contracts.
Initially, the AIA slightly modified several of its standard-form contracts to address Green Building and sustainable design issues. For instance, the AIA inserted language in § 3 of the AIA B101‑2007 requiring Architects to address sustainability issues with Owners:
§ 3.2.3 The Architect shall present its preliminary evaluation to the Owner and shall discuss with the Owner alternative approaches to design and construction of the Project, including the feasibility of incorporating environmentally responsible design approaches.
§ 184.108.40.206 The Architect shall consider environmentally responsible design alternatives, such as material choices and building orientation, together with other considerations based on program and aesthetics, in developing a design that is consistent with the Owner’s program, schedule and budget for the Cost of the Work.
However, the B101‑2007 did “little to assist in allocating the liability risks” and “did not solve the innovative evolutions within the design and construction industry.” The B101‑2007 basically mandated that “environmentally responsible designs” be considered and discussed, but did nothing to address the risk allocation issues.
Additionally, the AIA created the B214‑2007 (formerly B214‑2004), Standard Form of Architect’s Services: LEED Certification in an attempt to specifically establish the parties’ duties and responsibilities when an Owner seeks Leadership in Energy and Environmental Design (“LEED”) certification from the U.S. Green Building Council (“USGBC”). The Architect’s services included, among others: conducting a pre‑design workshop to review the LEED rating system and to target LEED points; preparing a LEED Certification Plan; monitoring the LEED Certification process; providing LEED specifications for inclusion in the Contract Documents; and preparing a LEED Certification Report detailing the LEED rating ultimately achieved. The B214-2007 was specifically designed to be an attachment or addendum to the B101-2007 for those projects seeking LEED certification, and it provided the basic framework for how LEED goals would be targeted, how those goals would be included in the bid and contract documents, and what services the Owner would be required to provide in the process. Significantly, however, the B214-2007 failed to include any provisions dealing with what would happen if a project were to fail to achieve its desired or targeted LEED rating level. Instead, the contract form addressed the green or LEED “goals” for the project, rather than any formal contractual requirements for achieving a desired outcome. Also, the B214-2007 was silent on what, if any, “green” requirements would be incorporated into the contract documents, and it was vague on the respective responsibilities of the Owner, Architect, and Contractor for “green” performance.
During this same time frame, however, two things became clear: Green Building was not a fad and was here to stay, and the unique risks involved had to be addressed in construction contracts. Not surprisingly, the AIA chose to make the protection of the Architect one of its prime concerns in its attempts to address the risks associated with sustainable construction.
AIA D503-2011: AIA First Addresses Allocating Risk
In 2011, the first sustainable guide was released by the AIA. The D503-2011 was designed to be used with the AIA’s Conventional (A201) family of documents, including AIA Documents A101-2007, A201-2007, and B101-2007. The assumption was that parties to green projects would separately incorporate the model language of the D503-2011 into the appropriate AIA document.
In the D503-2011 introduction, the AIA acknowledged that sustainable design construction practices as well as mandatory and voluntary requirements (such as LEED) “cannot be achieved without each of the Project participants accepting new roles and responsibilities on the Project,” and the “rapidly changing field of sustainable design and construction presents new roles, responsibilities, risks and opportunities for those involved in the design and construction industry.” Under the proposed language in the D503-2011, the Owner was certainly accepting risks and roles different from those in a traditional project.
Article 1 of the D503-2011 contained suggested language to be included in the A201-2007 (to define a Sustainable Objective, Sustainable Measure, Sustainable Plan, Sustainable Certification, Documentation for Certification, and Certifying Authority). As regards contractual risk, the model language dictated that the Sustainable Plan (which the model language called to be prepared by the Architect) would contain the Owner’s, Architect’s, and Contractor’s roles and responsibilities associated with achieving the Sustainable Measures. Of course, as the D503‑2011 primarily addressed the design-bid-build project delivery system, under the suggested language, the Contractor and its team had no role in creating the Sustainable Plan. As discussed below, an industry consensus seems to have emerged that the design-bid-build project delivery system is not the preferred system for sustainable construction, so maybe greater emphasis should have been put on alternative project delivery systems by the AIA.
The D503‑2011 expressly recommended no change to the standard of care language from the regular Architect/Owner Agreement and warned Architects about adding “warranties, guarantees and assurances that a specific Sustainable Objective will be achieved.” Also, if the Architect was performing LEED certification services pursuant to AIA B214-2007, the D503‑2011 recommended adding a § 12.2 to the B101-2007 with language that the AArchitect does not warrant or guarantee that the Project will be granted LEED Certification,” and similar language was proposed in the D503-2011 in the case of a failure to achieve the Sustainable Objective. In explanation, the AIA reasoned that most Architect professional liability policies would not govern a standard of care higher or greater than the non-green standard in the locality of the Project location.
The D503‑2011 also recommended modifying the Architect/Owner Agreement to note that “Substantial Completion is not the anticipated date of the award of a Sustainability Certificate” so as to alert the Owner that the award would occur later than substantial completion. In addition, the D503-2011 recommended adding language (proposed § 220.127.116.11) to the Architect/Owner Agreement stating that “Substantial Completion does not include the award of the Sustainability Certificate or verification that the Sustainable Objective has been met.” This is very understandable because, in many cases, the third-party sustainability certificate (e.g., a LEED designation) cannot be awarded until after the building has been operable for a while and after commissioning can be accomplished. However, this leaves the Owner adrift: without assurances that perhaps one of the most important elements of the project, i.e., a Sustainability Certificate, will ever be achieved, and without full capacity to address the problem because substantial completion has already been declared.
One of the hallmarks of the D503-2011 was that it recommended inserting language into the Architect/Owner Agreement that would increase the Owner’s responsibilities on a sustainable project over its responsibilities on a traditional project. For example, a proposed provision had the Owner, not the Architect, bearing the risk of not achieving the Sustainable Objective on account of untested materials and equipment. Still other proposed language made the Owner accountable for its responsibilities under the Sustainable Plan, held the Owner responsible for the Contractor=s performance of its requirements under the Sustainability Plan, and required the Owner to provide “any information relevant and necessary for achievement of the Sustainable Objective . . . .” While these provisions are understandable — given that the Owner should be more involved in a sustainable project — they seem too onerous for the non-professional Owner.
Another highlight of the D503-2011 concerns its treatment of consequential damages. The standard Architect/Owner Agreement contains a mutual waiver of consequential damages. This mutual waiver provision may preclude an owner from seeking damages for losses incurred by the owner for rental expenses, losses of use, income, profit, financing, business and reputation, management, employee productivity, and the services of such persons — although no one knows what consequential damages are or may be, at least with any predictability or uniformity. However, the D503-2011 proposed language had the Owner waiving damages associated with not achieving the very results central to the Owner’s choice to “Go Green” in the first place. Under the D503-2011, in § 8.1.3 the Owner would agree to waive damages resulting from the failure to achieve the Sustainable Objective or one or more Sustainable Measures, including unachieved energy savings, unintended operational expenses, lost financial or tax incentives, or unachieved gains in worker productivity. Can it really be stated, given the likely funds and efforts invested by the Owner to achieve a “green” building, that these types of damages are consequential?
As regards D503-2011’s recommendations for the A201-2007, it suggested including language allowing the Architect to rely on representations by the Contractor about the effect that substitutions may have on the Project’s ability to obtain a Sustainability Measure or the Sustainable Objective. Specifically, it included language stipulating that the Contractor does not warrant the achievement of the Sustainable Objective and language similar to the Architect/Owner Agreement wherein all parties expressly waived consequential damages such as unachieved energy savings, unintended operational expenses, lost financial or tax incentives, or unachieved gains in worker productivity.
In sum, the D503-2011, the first serious attempt by the AIA to address risk allocation as regards sustainable construction, contained language that allowed the Architect to possibly avoid responsibility for failing to achieve the Sustainable Objective, Sustainable Measures, and/or third-party certification. The proposed language, however, did not seem to adequately protect the Owner from failures in either Architect or Contractor performance on the sustainable portions of the Project.
The D503-2011, however, was quickly replaced. In 2012, the AIA moved away from the concept of using a guide to alter language in the AIA family of contract documents and towards actually using new contract document templates for sustainable projects. The D503-2011, however, is still worth studying because it provides valuable insights into the AIA’s initial thinking and approaches to risk allocation in sustainable construction projects.
AIA’s Sustainable Project Documents
In 2012, the AIA released a set of five template contract SP Documents to define roles and responsibilities and provide procedures and processes for the Owner, Architect, and Contractor to identify sustainability goals and to map out a plan to achieve those goals. These five SP Documents are:
- A101‑2007 SP ‑ Standard Form of Agreement Between Owner and Contractor for use on a Sustainable Project Where the basis of payment is a Stipulated Sum
- A201‑2007 SP ‑ General Conditions of the Contract for Construction, for use on a Sustainable Project
- A401‑2007 SP ‑ Standard Form of Agreement Between Contractor and Subcontractor, for use on a Sustainable Project
- B101‑2007 SP B Standard Form of Agreement Between Owner and Architect, for use on a Sustainable Project
- C401‑2007 SP B Standard Form of Agreement Between Architect and Consultant, for use on a Sustainable Project
These five SP forms are essentially the 2007 editions of specified AIA contracts, but modified to include provisions tailored to green/sustainability project issues. Why the AIA moved towards contract templates and away from using the guide is not quite clear, but the AIA professed that releasing the SP Documents was a next step towards “its commitment to leadership in the area of sustainable construction and design.” Also, it seems that the AIA will be releasing additional SP versions of AIA Contract Documents.
The SP Documents have addressed many of the legal issues surrounding Green Building by requiring the Architect to conduct a Sustainability Workshop with the Owner and relevant consultants, the result of which is a written Sustainability Plan identifying the Owner’s Sustainable Objective for the project. The SP Documents both require that the Sustainable Measures be outlined in a Sustainability Plan and also allocate responsibility for each Sustainable Measure to a specific project team member.
The SP Documents move Green Building forward positively by mandating the core concepts of the Sustainable Objective, the Sustainable Measure, and the Sustainable Plan in all the SP Documents. However, is the AIA improperly promoting the design-bid-build delivery system over other project delivery systems that may be more beneficial to the Owner? If an Owner selects the design-bid-build delivery system for its green project, it should delve a little deeper into the SP Documents before executing one of these contracts. As with the D503-2011, this is especially true when it comes to reviewing the proposed risk allocation to the Owner.
Possible Problems for Owners with the SP Documents
First, the SP Documents are designed for a design-bid-build delivery system, which is not considered by many sustainability experts to be the best project delivery system for Green Building. Second, the SP Documents tend to overprotect the Architect from liability and, in some instances, may prohibit the Owner from recovering certain damages if the “green” project actually fails to achieve the stated sustainability goals — even if it is the Architect’s or Contractor’s duty to achieve these goals. All Owners pursuing sustainable builds should consult with an attorney familiar with the SP Documents before entering into one of these contracts, as Owners may want a different project delivery system or may want some serious revisions to the template language should they forge ahead under the traditional design-bid-build delivery system.
(1) The SP Documents and the Design-Bid-Build Issue:
(a) Design-Bid Build
It must be noted that the SP Documents are intended for use on design‑bid‑build projects and not more integrated project delivery methods widely recognized as much more suitable for promoting success in greening a project. As a result, the SP Documents contemplate that the Sustainability Plan will be developed without the participation of the Contractor (and subcontractors) who, in a design‑bid‑build project, are not hired until after both the Sustainability Plan and the project design are completed. This, of course, makes it more difficult to achieve the necessary collaborative relationship between all members of the project team. The Architect and Contractor are placed in an adversarial setting because of the separate contracts through which each is engaged by the Owner. And the Owner may face more exposure in terms of design defects and contractor change orders because it can be responsible to the Contractor under the Spearin doctrine.So the first question that any Owner should ask is what project delivery system is best for the project, and, if sustainability goals are very important, the Owner may want to consider alternative project delivery systems such as construction management at-risk, design-build, or the highly touted integrated project delivery system before committing to the design-bid-build process.
(b) Other Options
(i) Construction Management at-Risk
Construction management at-risk (“CMAR”) accounts for a good percentage of the private construction market, but it is seldom used in the public-sector market because the majority of those projects face restrictive regulatory structures, though that is slowly changing. The model is similar to design‑bid‑build in that the CMAR acts as general contractor during construction, holding trade contracts and guaranteeing construction performance and completion for a cost negotiated when the design is 50-90% complete. However, the CMAR also provides professional construction advisory management services during the design phase, advising the Owner on schedule, budget, and constructability issues. For this reason, construction can start before design is 100% complete. The central advantage is that the Owner gets the benefit of construction contractor input on budget, constructability, and scheduling issues during design. A key disadvantage of the CMAR model is that the same adversarial issues present in design‑bid‑build may also exist, once the CMAR converts from the Owner’s adviser during design to an at‑risk Contractor during the construction phase. However, the collaborative design phase fostered by the CMAR system seems preferable in Green Building projects.
In general, because the Architect and Contractor are integrated into a design-build team from the start, there are opportunities in design‑build to save both time and money. However, because there is only one contract between the Owner and the design‑build team, the Owner loses much involvement with, and control over, the design program and the accountability it can demand by holding separate contracts with the Architect and Contractor using other delivery models. Yet it is the least risky delivery model from the Owner’s perspective as only one entity can be liable to the Owner and the normal battle between the Contractor and Architect as to which entity is responsible cannot exist.
Design-build does have its advantages. First, because the time required to create the bid documents and a complete design under a design‑bid‑build model is removed, project delivery speeds can increase. Second, the synergies realized through engaging a single design and construction team should reduce total costs. Additionally, from the Owner’s perspective, there is a single point of contact and accountability for design and construction issues.
However, in design-build projects, the Owner loses significant control over and involvement in the design phase when compared to traditional design‑bid‑build delivery. So design‑build may not be appropriate for highly technical projects with unique or specialized programmatic requirements where the Owner’s involvement is preferred or even necessary. Another drawback involves the loss of the accountability that exists when the Owner chooses to hold separate contracts for design and construction.
However, with the involvement of an expert in sustainable construction working for the Owner — and if the Project’s goals are well defined from the beginning — the design-build delivery system may work for the sophisticated Owner in a Green Building setting.
(iii) Integrated Project Delivery
Unlike the other project delivery methods, the Integrated Project Delivery (“IPD”) method involves one multi‑party contract between at least the Owner, Architect, and Contractor, but can include trade contractors and key participants as well. IDP, however, is a new method and not well known in the industry. For example, in a 2014 survey, approximately 23% of Architects and 28% of Contractors were familiar with IPD, but only 2% of both Architects and Contractors had experience on an IPD project within the past three years of the survey.
The AIA describes IPD as “a project delivery method that integrates people, systems, business structures and practices into a process that collaboratively harnesses the talents and insights of all participants to reduce waste and optimize efficiency through all phases of design, fabrication and construction.” The IPD approach allows the Owner, Contractor, Architect and other consultants to collaborate during the entire duration of the project from the pre‑design phase through the construction phase. Further, in order to incentivize collaboration, the IPD spreads the financial risks and rewards of the project across all parties. Thus, the participants work in the interest of the project in its entirety instead of just in their own scope. All the participants collaborate to create design plans and to ensure the building will meet the determined targets through a multi-party contract. Another key element is the shared risk and reward between the parties; if the project is delivered to meet or exceed its established targets, then profit is shared among the participants and bonuses may be rewarded to the team, but if the project does not meet an established target, then part of the profit is deducted.
In 2015, a study done at the University of San Francisco compared the most widely used design-bid-build method to the IPD to identify the superior project delivery method for constructing a LEED-certified building. The study found that IPD provides more assurance that project performance targets will be met or exceeded. Also, the recently mandated LEED v4 supports the integrative design process with a specific credit, which shows how important the USGBC thinks this project delivery system is in moving sustainability forward.
The AIA’s main IPD document is the C191-2009 (Standard Form Multi-Party Agreement for Integrated Project Delivery). The C191‑2009 establishes the basic legal framework for a multi‑party agreement for integrated project delivery whereby the parties execute one coordinated and integrated agreement that clearly sets forth the parties’ roles and responsibilities in delivering a project consistent with the principles of IPD. The individual success of each party is directly tied to the project’s overall success. The Architect and the Contractor, as well as any other non‑Owner parities, collectively earn profit through the achievement of the Owner’s specified goals. This method of compensation promotes “good for the project” behavior and encourages all parties to avoid assigning blame in favor of working through disputes as they arise. In addition, the agreement establishes a collaborative management structure that involves all of the primary project stakeholders and is designed to minimize disputes while increasing project efficiency and quality.
In the Fall of 2010, the AIA touted IPD and the C191‑2009, noting that “[t]he AIA’s new Multi‑Party Agreement for Integrated Project Delivery reflects the shift away from working in silos and supports new collaborative methods being employed among architects, owners and contractors.” However, even though it seems that there is a consensus in the industry that the collaborative nature of IPD works especially well with sustainable construction, it seems that the AIA may not be actively promoting this project delivery system as much as it might. For instance, it is strange why an “SP” version of the C191-2009 was not included with the release of the SP Documents. Hopefully, SP Documents for alternate project delivery systems will be released by the AIA soon.
An Owner that is serious about sustainable construction would be well advised to consider alternative project delivery systems, including IPD, before moving forward with its green project and should consider all project delivery systems (and all available contract templates) before agreeing to enter into a contract using the SP Documents.
(2) Issues with Using the Standard SP Document Provisions:
If the Owner is satisfied with the traditional design-bid-build project delivery system then, as with every contract document and all contract negotiations, all proposed provisions and terms should be analyzed carefully and countered and altered where necessary. This is especially true of the SP Documents. The following are just a few of the standard provisions contained in all the SP Documents that this author wants to use as examples of why all SP Document provisions should be thoroughly studied by the Owner and the Owner’s counsel before any SP Document is executed
(a) Architect’s Responsibilities/Standard of Care:
B101-2007 SP, § 2.2 states:
The Architect shall perform its services consistent with the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances. The Architect shall perform its services as expeditiously as is consistent with such professional skill and care and the orderly progress of the Project.
This is identical to what the D503-2011 proposed. However, as this is a contract for a sustainable project, the Owner may want to include language to ensure that the Architect=s standard of care is consistent with Green Building standards for sustainable design professionals or some sustainable baseline. If so, the Owner should further demand proof that the Architect’s professional insurance liability policy covers this heightened standard. Leaving the standard provision in its unaltered form means that the Architect need only perform its sustainable services to the local standard, which is the professional skill and care ordinarily provided by architects practicing in the same or similar locality under the same or similar circumstances — a standard that may be too low and too vague. If the Architect is a LEED Accredited Profession (“LEED AP”), the provision might be altered to require the Architect to perform its services consistent with the professional skill and care ordinarily provided by architects with the LEED AP accreditation. “Otherwise, in the absence of a contractually created or statutorily mandated higher standard of care, the standard of care is based on what other professionals providing the same services in the same community would do.”
In addition, the Owner might want to consider eliminating § 18.104.22.168 from the B101-2007 SP, as it states that “[a]ny certification, declaration, or affirmation the Architect makes to the Certifying Authority shall not constitute a warranty or guarantee to the Owner or the Owner’s contractors or consultants” so as to possibly elevate the Architect’s standard of care.
Regardless, the Owner should perform its due diligence on the Architect’s qualifications as an expert in Green Building and may want to hire an independent “green” consultant to represent its interests prior to even engaging the Architect to make sure that the Architect has the proper skill set to perform the necessary design and administrative work for the project.
(b) Scope of the Architect’s Sustainability Services
In a positive change from the D503-2011, the SP Documents no longer treat Sustainability Services as Additional Services. The SP Documents define the Sustainability Services that the Architect will perform, including: collaborating with the Sustainable Objectives, preparing the Sustainability Plan, developing the Sustainability Measures, verifying that the project has met the Sustainable Objectives, 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. The scope of the Architect’s “Sustainable Services” are contained in § 3 of the B101-2007 SP, primarily in § 3.3. In essence, if the standard provisions in the B101-2007 SP are used, the Architect will be leading the Project’s design and administering the Project from cradle to certification, effectively grading its own work as regards sustainability. An Owner may want to consider using a separate, independent sustainable professional to monitor the Project’s progress towards the Sustainability Objectives and/or any required Sustainability Certificate. This is especially true given the language in the SP Documents requiring the Owner to approve the Sustainability Plan, to perform certain Sustainable Measures, to produce information on previous construction and renovation projects, to comply with its obligations to the Certifying Authority, and fulfill obligations regarding Commissioning.
Also, an Owner may want to insist on making Commissioning part of the Architect’s standard Sustainable Services and tie Commissioning to the achievement of the Sustainable Objective and/or Sustainable Measures. The B101-2007 SP requires that the Owner hire a separate Commissioning agent, but an Owner would likely be better served by having the Architect perform these final services, with the Architect’s overall Project compensation linked to the achievement of the Sustainable Objective after Commissioning is complete.
(c) Liability for Specified Green Products
The SP Documents’ standard provisions limit the Architect’s and the Contractor’s responsibilities for specifying or recommending green products with a limited track record for the project. The SP Documents only require that the Architect and the Contractor’s design professional disclose information about the limited track record and then allow the Architect, Contractor, and the Contractor’s design professional to rely on the manufacturer’s representations about the product (if the Owner elects to allow the product) to be used to limit their own liability. Although it is laudable to encourage Architects and Contractors to recommend new “green” products in an effort to move sustainability in general forward, the Owner may not want to take this risk and may want to eliminate the applicable provisions or insist on specific contract language defining “limited track record” very narrowly. While Owners, like other project participants, should want to try new products in an attempt to push sustainability to the next level, Owners should not bear all the risk and definitely should not bear the risk for products that actually have been previously tested.
(d) Lack of Warranty for Achieving Sustainable Objective
Achieving the Sustainable Objective is likely one of the main goals of any Owner pursuing a Green Building project. However, like the suggested language of the D503-2011 (as currently drafted), the standard SP Document provisions disclaim any warranty by the Architect, Contractor, or subcontractors that the Sustainable Objective will be achieved. For example, the A201-2007 SP and A401-2007 SP each make it clear that the Contractor does not guarantee or warrant that the Project will achieve the Sustainable Objective. Similarly, the B101-2007 SP and C401-2007 SP forms contain disclaimers indicating that, because achieving the Sustainable Objective is dependent upon many factors beyond the control of the Architect or consultant, as applicable, those entities do not warrant or guarantee that the Project will achieve the Sustainable Objective. The Owner, however, may want to demand some assurances that the Sustainability Objectives will be met through the insertion of language in the Contract Documents. Such language may mandate that the Architect warrant the design aspects and the Contractor warrant the construction portion, while describing certain damages that the Owner can recover if the Sustainability Objectives are not achieved. Making sure that the Architect’s insurance covers any such warranties is important, as standard errors and omissions insurance policies may not cover these losses unless coverage for these warranties is expressly added. As regards the Contractor, there is an argument that the standard performance bond would cover the Contractor’s warranty if the Contractor’s green performance requirements are interpreted as performance specifications.
(e) Consequential Damages for a Failure of Green Performance
As noted at the beginning of this article, there are many incentives driving Owners’ insistence that their green projects achieve Sustainable Objectives and achieve LEED or similar certifications, including energy savings and potential increased building values. In addition, an Owner may be expecting tax rebates or other financial incentives upon reaching the Sustainability Objective. However, as currently written, the standard waivers of consequential damages contained in the SP Documents 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 the Sustainable Objective or a Sustainable Measure, are all consequential, not direct, and are all waived by the Owner. An Owner should probably try to eliminate these waivers and, in fact, may want to include penalty clauses in the respective contracts with the Architect and Contractor to kick in should the Sustainability Objectives not be achieved. It seems clear that, considering the time, effort, and money put in by the Owner to move forward with the Project, these seemingly direct damages incurred by the Owner for others’ failure to achieve the expected “Greenness” are not consequential and should not be waived. The D503-2013, when addressing this provision, notes that this section may be altered and states “[u]pon consultation with legal counsel, it may be desirable to modify the mutual waiver of consequential damages to address specific or unique concerns related to your Project.” An Owner may consider including a specific clause in its contracts with the Architect and the Contractor that state something along the lines of the following:
Contractor [Architect] expressly acknowledges that Owner intends to seek LEED certification of the Project as a [Certified or Silver, Gold or Platinum‑certified] Project [or other third-party certification], and that certain tax credits and other economic benefits [list them] are dependent on achieving such certification.
(f) Owner’s Responsibilities
Under § 5 of the B101-2007 SP and under § 2 of the A201-2007 SP, an Owner must perform a number of affirmative duties. For example, under § 5.13 of the B101-2007 SP, an Owner is required to provide a those Sustainable Measures identified as a responsibility of the Owner in the Sustainability Plan and is required to make sure that the Owner=s contractors and consultants perform in accordance with the Sustainability Plan. As the Architect is tasked under the SP Documents to take the lead on drafting and finalizing the Sustainability Plan, it may be wise for an Owner to have its own “green” consultant present during the drafting of the Sustainability Plan so that the Owner is not agreeing to obligations not originally contemplated. Also, under § 5.16 of the B101-2007 SP, an Owner is responsible for preparing, filing, and prosecuting appeals to the Certifying Authority, or any other action to fight the reduction of an awarded Sustainability Certification. If the Owner wants to place the responsibility of achieving the Sustainability Certification with the Architect and/or Contractor, then this provision needs to deleted and the responsibility (and cost) of making this fight should shift accordingly. This provision should be reviewed in unison with § 4.3.3 and § 22.214.171.124 of the B101-2007 SP. In addition, given the very short time frame and the somewhat complicated Green Business Certification Institute’s procedural rules for appealing its decisions, the Owner would do well to require the Architect to perform this work per a modification of the contractual terms.
The B101-2007 SP does not contain a provision requiring that the Architect indemnify the Owner. An Owner may want to insert an indemnity clause in the contract. Again, the Owner should make sure that the Architect’s insurance policy covers such indemnification or should craft the provision in such a manner as to ensure coverage. Examples of AIA indemnification clauses that should not preclude insurance coverage are the AIA B103‑2007 (Owner‑Architect Agreement for Larger Complex Projects) and the AIA B503‑2007 (Guide for Amendments to AIA Owner‑Architect Agreements). The AIA 103‑2007 contains the following provision:
§ 8.1.3 The Architect shall indemnify and hold the Owner and the Owner=s officers and employees harmless from and against damages, losses and judgments arising from claims by third parties, including reasonable attorneys’ fees and expenses recoverable under applicable law, but only to the extent they are caused by the negligent acts or omissions of the Architect, its employees and its consultants in the performance of professional services under this Agreement. The Architect’s duty to indemnify the Owner under this provision shall be limited to the available proceeds of insurance coverage.
This clause was carefully crafted so that the Architect is only liable for those third-party claims to the extent caused by the Architect’s negligent acts or omissions, and recovery is limited to available proceeds of insurance coverage. An Owner should consider inserting a similar clause in its contracts with the Architect and the Contractor that expressly addresses damages claimed by third parties related to failures in green performance.
(h) Substantial Completion
Under the standard SP Documents, a Project’s Substantial Completion is achieved when the Project can be occupied and used for its intended purposes, and the achievement of the Sustainable Objective is not a condition precedent to Substantial Completion. While there are many good reasons for not tying Substantial Completion to the completion of the Sustainable Objective (i.e., time lag for the certifying authority to decide upon the achievement of the Sustainable Objective, Commissioning Requirements, etc.), if the achievement of the Sustainable Objective is of the utmost importance to the Owner, then the Owner may want to consider revising these provisions and insist that the date of Substantial Completion be linked with the award of the Sustainable Certificate. In addition, the standard SP Documents do not make the achievement of the Sustainable Objective a condition precedent to the issuance of the final Certificate of Payment, so this may be an additional issue for the Owner to address.
(i) Other Issues
In addition to the above, the SP Documents are missing clauses that may protect the Owner against some specific risks frequently arising in the Green Building context. For example, an Owner may consider mandating that it has ownership rights in documents required to be submitted to third parties for certification, regardless of ownership rights in technical design documents, as the Owner may be unable to obtain the required certification documents if a dispute arises with the Architect. Also, an Owner may want to consider extending warranty periods to include issues that may arise during the certification process but after the one‑year warranty call‑back period. Finally, the Owner should insist on inserting contract language noting that the unavailability of sustainable materials should be a non‑compensable delay to the Project schedule.
The above is just a snapshot of some of the issues facing Owners when entering into the realm of Green Building. Over the last ten years, contractual forms have done a much better job of clarifying expectations and defining and mitigating the risk of an “underperforming” building. It must be stated that the AIA has played a large role in pushing sustainability forward. Owners engaged in Green Building, however, should be prudent in the type of project delivery system that they pick, should review all contract provisions, and should demand the inclusion of performance specifications in their contracts.
An integrative project delivery system that brings all participants, including the Owner, Architect, and Contractor together early in the process to work out a vision and a budget as a single team — rather than the more typical linear handoff from Owner to Architect to Contractor and then back to the Owner — may be the best option for Owners in the Green Building context. However, in many instances this may not be an option, and an Owner may want to select the more traditional design-bid-build project delivery system. If so, it is likely that SP Documents will be presented to the Owner. While the language in the SP Documents very helpfully articulates the sustainable goals and the methodology for achieving the same, this author strongly advises that any Owner seek independent advice both from a sustainability expert and a lawyer familiar with Green Building before agreeing to the standard provisions in the SP Documents.
Mr. Adrian D’Arcy’s article was originally published by the American Bar Association, The Construction Lawyer, Vol. 37, No. 1, Winter 2017. Reprinted with permission.
. Booz Allen Hamilton, Green Building Impact Study (September 2015), http://go.usgbc.org/2015-Green-Building-Economic-Impact-Study.html.
. Dodge Data & Analytics, World Green Building Trends 2016: Developing Markets Accelerate Global Green Growth 1 (SmartMarket Report, 2016), http://fidic.org/sites/default/files/World%20Green%20Building%20Trends%202016%20SmartMarket%20Report%20FINAL.pdf.
. See generally McGraw Hill Constr., World Green Building Trends: Business Benefits Driving New and Retrofit Market Opportunities in Over 60 Countries (SmartMarket Report, 2013), http://www.worldgbc.org/files/8613/6295/6420/World_Green_Building_Trends_SmartMarket_Report_2013.pdf.
. Nielson, It Pays to Be Green: Corporate Social Responsibility Meets the Bottom Line (June 17, 2014), http://www.nielsen.com/us/en/insights/news/2014/it-pays-to-be-green-corporate-social-responsibility-meets-the-bottom-line.html
. U.S. Green Bldg. Council, Benefits of Green Building (April 1, 2016), http://www.usgbc.org/articles/green-building-facts (updated Oct. 2016).
. As examples, consider Section 45L tax credits (New Energy Efficient Home Tax Credit), 179D tax deductions (179D commercial buildings energy efficiency tax deduction), Green 504 Loans from the Small Business Administration, HUD’s MIP Reduction Loan, Fannie Mae’s Multifamily Green Initiative loan program, and the Freddie Mac Multifamily Green Advantage loan system.
. See, e.g., Gary J. Tulacz, Insurers Worry About Green‑Building Risks (McGraw‑Hill Constr., July 9, 2008), http://www.theburnscompanies.com/documents/ENR_greenclaims_71408.pdf; Jeffrey D. Masters and John R. Musitano, Jr., Managing Liability in Green Construction, Los Angeles Law. 17 (Dec. 2007); Kenneth C. Gibbs, Green Building: New Benefits for Society and New Challenges for Risk Management, Ins. J., (November 16, 2008), http://www.insurancejournal.com/magazines/features/2008/11/16/157365.htm; Maura K. Anderson, James K. Bidgood, and Eugene J. Heady, Hidden Legal Risks of Green Building, 84 Fla. B.J., no. 3, 2010, at 35; Kate Bowers and Leah Cohen, The Green Building Revolution: Addressing and Managing Legal Risks and Liabilities, White Paper, Environmental Law & Policy Clinic, Harvard Law School (March 10, 2009), http://dvgbc.org/sites/default/files/resources/Green%20Building%20Revolution.pdf; Martha L. Perkins, Identifying and Managing the Risks Unique to “Green” Construction: What Sureties Should Know, Northeast Surety & Fidelity Claims Conference (September 23‑25, 2009).
. Standard Form of Agreement Between Owner and Architect (“Architect/Owner Agreement”).
. Ronald S. Cusano and Rob Remington, ABA Forum on the Construction Industry Seminar, When “Green” Turns To “Red” and LEEDs to a Summons and Complaint: Potential Liability on Green Projects B Allocating Risk and Avoiding Liability Pitfalls (April 16-18, 2009).
. David A. Ericksen, A Sustainable Standard of Care? Managing Evolving & Innovative Products, Processes & Performance Standards in Design Delivery (AIA Trust White Papers 2011), http://www.theaiatrust.com/whitepapers/sustainable/.
. The D503-2011 expressly notes that the model language was coordinated with the AIA documents which are used for design‑bid‑build projects. No specific model language was suggested by the AIA for alternative project delivery systems, although the D503-2011 did state that “[m]any of the concepts discussed in this Guide are, therefore, applicable to AIA Contract Documents for other delivery models such as Design‑Build or Integrated Project Delivery.”
. See Introduction, AIA D503-2011 (emphasis added).
. General Conditions of the Contract for Construction.
. See D503-2011, at 6 and proposed § 1 to the A201-2007.
. See D503-2011, at 7-8.
. See D503‑2011, at 8.
. See D503‑2011, at 11.
. See D503‑2011, at 8.
. See D503‑2011, at 9.
. See D503‑2011, at 12-13 and proposed § 126.96.36.199 to the Architect/Owner Agreement.
. See D503‑2011, at 16 and proposed § 5.13 to the Architect/Owner Agreement.
. See D503‑2011, at 16-17 and proposed § 5.14 to the Architect/Owner Agreement.
. See D503‑2011, at 18 and proposed § 188.8.131.52 to the Architect/Owner Agreement.
. Gregory K. Morgan and Albert E. Phillips, Design Professional Contract Risk Allocation: The Impact of Waivers of Consequential Damages and Other Limitations of Liabilities, 33 J.C. & U.L. 1, 13 (2006).
. General Conditions of the Contract for Construction.
. See D503‑2011, at 22 and proposed § 184.108.40.206 to the A201-2007.
. See D503‑2011, at 22 and proposed § 3.5.2 to the A201-2007.
. See D503‑2011, at 26 and proposed § 220.127.116.11 to the A201-2007.
. See Introduction, D503‑2013, at 4 ¶ 2.
. See id. at 4 n.1.
. See generally Charles J. Kilbert, Sustainable Construction: Green Building Design and Delivery (3d ed. 2013); see also Nicole Marie Hanks, Investigation into the effects of project delivery methods on LEED targets, Master’s Paper no. 148, University of San Francisco (May 22, 2015). Also, LEED v4, the new USGBC certification system, goes so far as to give LEED credits for using an integrative process.
. United States v. Spearin, 248 U.S. 132 (1918).. McGraw Hill Constr., Project Delivery Systems: How They Impact Efficiency and Profitability in the Buildings Sector (SmartMarket Report, 2014) McGraw‑Hill Construction. (2014).
. Integrated Project Delivery: A Guide (AIA 2007).
. David C. Kent and Burcin Becerik‑Gerber, Understanding construction industry experience and attitudes toward integrated project delivery. 136 J. Constr. Eng’g & Mgmt., 815B825 (2010).
. See Nicole Marie Hanks, Investigation into the effects of project delivery methods on LEED targets, Master’s Paper no. 148, University of San Francisco (May 22, 2015).
. U.S. Green Building Council.
. Business Wire, The American Institute of Architects (AIA) Releases Multi-Party Agreement for Integrated Project Delivery (November 3, 2009) (quoting Michael B. Bomba, Associate Counsel of AIA Contract Documents), http://www.businesswire.com/news/home/20091103005652/en/American-Institute-Architects-AIA-Releases-Multi-Party-Agreement.
. Standard Form of Agreement Between Owner and Architect, for use on a Sustainable Project.
. Depending on the project location, state and local laws, which mandate certain “Green” standards, may heighten the Architect’s standard of care.
. See Ryan M. Manies, Managing the Risks and Embracing the Benefits of Going Green (AIA Trust White Paper, 2014).
. See D503-2013, at 16 and B101-2007 SP, § 3.1
. See, A201‑2007 SP ‑ General Conditions of the Contract for Construction, for use on a Sustainable Project at 18.104.22.168 for definition of “Sustainable Objective.”
. Id. at § 22.214.171.124 for definition of Sustainable Plan.
. Id. at § 126.96.36.199 for definition of Sustainable Measure.
. This would be especially true if the project is attempting to achieve LEED certification and the architect is not a LEED AP.
. See AIA B101-2007 SP § 188.8.131.52.. See AIA B101‑2007 SP § 5.13.
. See AIA B101‑2007 SP § 5.14.
. See AIA B101‑2007 SP § 5.15 and §5.16.
. See AIA B101‑2007 SP § 5.17.
. See AIA B101‑2007 SP § 5.17.
. See, for example, AIA B101‑2007 SP § 184.108.40.206 and §10.9 and AIA A201‑2007 SP § 220.127.116.11.
. In addition, Owners should be wary of executing the AIA waiver regarding any specific “Green Product” as it clearly shifts the risk of using the “Green Product” on the Owner. See “Client Waiver and Informed Consent To Use Experimental Green Product” from the AIA Trust.
. See, for example, AIA A201-2007 SP § 3.5.2.
. An alternative (to try and make negligence claims insurable under a professional errors and omissions policy) is to draft the standard of care language carefully so as to make any deviations from a high standard of Sustainbility Services by the Architect constitute clear negligence.
. Martha L. Perkins, Identifying and Managing the Risks Unique to “Green” Construction: What Sureties Should Know, Northeast Surety & Fidelity Claims Conference (September 23‑25, 2009).
. See, for example § 18.104.22.168 of AIA B101- 2007 SP.
. See AIA D503-2013, at 32. As a matter of standard practice, an Owner should be slow to agree to waive any damages that can be recovered from either the Contractor and/or the Architect but should attempt to have the Contractor and Architect waive their right to specific consequential damages. Many times this can be achieved as the Owner may have more power at the negotiating table.
. AIA A201-2007 SP, § 2.2.6 contains a near identical obligation.
. This is the entity that manages certification and credentialing for LEED.
. Of course, if the Owner is not too concerned about whether or not an indemnity claim may be insurable or not, then stronger indemnity language might be used.
. See, e.g., AIA 201-2007 SP § 9.8.1.
. See AIA 201-2007 SP § 9.10.1.