1. An Introduction to Sustainable Building: Risks and Opportunities BCBEC Presentation May 25, 2006 May 25, 2006 Ujjval K. Vyas, Ph.D., Esq., LEED AP Foran Glennon Palandech & Ponzi P.C. Ujjval K. Vyas, Ph.D., Esq., LEED AP Foran Glennon Palandech & Ponzi P.C.

2. Ujjval K. Vyas, Ph.D., J.D. Introduction Confluence of four factors leading to success of sustainable building movement Confluence of four factors leading to success of sustainable building movement Design professionals, especially architects, involved in activist-like support for sustainability Design professionals, especially architects, involved in activist-like support for sustainability Economic changes and studies showing viability of sustainability Economic changes and studies showing viability of sustainability Political changes resulting in the elimination of sustainability as hot button issue Political changes resulting in the elimination of sustainability as hot button issue Technological changes to make sustainability viable Technological changes to make sustainability viable

3. Ujjval K. Vyas, Ph.D., J.D. Introduction Economics Economics Intangible goodwill advantages Intangible goodwill advantages Tangible higher asset valuation, higher resale value, reduced operation and maintenance costs and reduced exposure to energy price volatility Tangible higher asset valuation, higher resale value, reduced operation and maintenance costs and reduced exposure to energy price volatility Benchmarking and plausible studies to show cost benefit outcomes Benchmarking and plausible studies to show cost benefit outcomes Especially important for long-term real estate asset holders: universities, schools, government buildings, hospitals, industrial/manufacturing facilities, non- profits, REITs, investment portfolios, etc. Especially important for long-term real estate asset holders: universities, schools, government buildings, hospitals, industrial/manufacturing facilities, non- profits, REITs, investment portfolios, etc.

4. Ujjval K. Vyas, Ph.D., J.D. Introduction Sustainability does not equal energy concerns alone, but energy is the most important factor in determining economic viability Sustainability does not equal energy concerns alone, but energy is the most important factor in determining economic viability Claims about increased worker productivity and performance in sustainable buildings are questionable Claims about increased worker productivity and performance in sustainable buildings are questionable Claims about indoor air quality and decreased health problems may prove plausible Claims about indoor air quality and decreased health problems may prove plausible

5. Ujjval K. Vyas, Ph.D., J.D. Introduction Life-cycle cost analysis is the lynch-pin of the sustainability question Life-cycle cost analysis is the lynch-pin of the sustainability question Energy modeling is at the core of the life-cycle cost analysis Energy modeling is at the core of the life-cycle cost analysis Design professionals who produce the models may face increased exposure due to the large potential damages if the performance fails Design professionals who produce the models may face increased exposure due to the large potential damages if the performance fails Increased marginal cost can be minimized by seeking sustainable attributes from the outset Increased marginal cost can be minimized by seeking sustainable attributes from the outset

6. Ujjval K. Vyas, Ph.D., J.D. Introduction Political context no longer creates barriers to sustainability Political context no longer creates barriers to sustainability Geo-politics and national security Geo-politics and national security Conservative agenda of fiscal responsibility and decreased taxation comport with putting up more efficient public and private buildings Conservative agenda of fiscal responsibility and decreased taxation comport with putting up more efficient public and private buildings Liberal agenda of decreasing taxation of natural resources and minimizing human intervention through resource harvesting comports with sustainable building Liberal agenda of decreasing taxation of natural resources and minimizing human intervention through resource harvesting comports with sustainable building Decreased dependence on fossil fuels common to both sides Decreased dependence on fossil fuels common to both sides

7. Ujjval K. Vyas, Ph.D., J.D. Law and Economics Legal risk and business risk are inextricably tied together for all members of the building industry Legal risk and business risk are inextricably tied together for all members of the building industry New marketplace configurations often present hidden legal or business risks New marketplace configurations often present hidden legal or business risks These risks differ depending on the parties or entities involved These risks differ depending on the parties or entities involved

8. Ujjval K. Vyas, Ph.D., J.D. Owners Sustainability/LEED advantages: Sustainability/LEED advantages: Marketing/market differentiation Marketing/market differentiation This will last only until LEED becomes a common best practiceThis will last only until LEED becomes a common best practice Reduced costs to maintain and operate Reduced costs to maintain and operate This is the most important economic issue for owners holding the asset for the long termThis is the most important economic issue for owners holding the asset for the long term Increased asset value Increased asset value Decreased risk for investment trusts or REITs to purchaseDecreased risk for investment trusts or REITs to purchase Decreased exposure to energy-price volatilityDecreased exposure to energy-price volatility Decreased litigation associated with construction Decreased litigation associated with construction Possible community or political advantages Possible community or political advantages Tax incentives; other equity or debt sources Tax incentives; other equity or debt sources Permitting incentives Permitting incentives

9. Ujjval K. Vyas, Ph.D., J.D. Owners Sustainability/LEED risks: Sustainability/LEED risks: Certification failure Certification failure Statutory issuesStatutory issues Lending issuesLending issues Marketing or third-party representation of certification issuesMarketing or third-party representation of certification issues Surety issues; especially latent defect exposuresSurety issues; especially latent defect exposures Performance failure Performance failure Contractor scope or design professionalContractor scope or design professional Increased initial costs Increased initial costs Certification or sustainability not always the most economically sustainable optionCertification or sustainability not always the most economically sustainable option

10. Ujjval K. Vyas, Ph.D., J.D. Owners Defraying or transferring risk Defraying or transferring risk Contracts Contracts Make sure RFQ, RFP and subsequent contracts make clear the certification to be obtainedMake sure RFQ, RFP and subsequent contracts make clear the certification to be obtained Make sure that the GC or CM, at risk or otherwise, requires the subcontractors to provide necessary documentation in support of certificationMake sure that the GC or CM, at risk or otherwise, requires the subcontractors to provide necessary documentation in support of certification

11. Ujjval K. Vyas, Ph.D., J.D. Owners Defraying or transferring risk Defraying or transferring risk Experienced contractor and designer Experienced contractor and designer LEED accreditation not the most important attributeLEED accreditation not the most important attribute Construction delivery method Construction delivery method Design-buildDesign-build Design-build with owners representativeDesign-build with owners representative

12. Ujjval K. Vyas, Ph.D., J.D. Owners Should owners seek LEED certification or a sustainable building? Should owners seek LEED certification or a sustainable building? In terms of economics, the energy reduction and management portion of the LEED certification is the most significant and objectively ascertainable In terms of economics, the energy reduction and management portion of the LEED certification is the most significant and objectively ascertainable Other attributes of LEED provide less tangible benefits to the owner Other attributes of LEED provide less tangible benefits to the owner LEED certification is most advantageous where the intangible benefits play an important role in the overall viability of the project LEED certification is most advantageous where the intangible benefits play an important role in the overall viability of the project

13. Ujjval K. Vyas, Ph.D., J.D. Contractors Sustainability/LEED advantages for contractors: Sustainability/LEED advantages for contractors: Market differentiation and competitive advantages in a changing marketplace Market differentiation and competitive advantages in a changing marketplace Intangible good will Intangible good will Decreased litigation Decreased litigation

14. Ujjval K. Vyas, Ph.D., J.D. Contractors Sustainability/LEED risks: Sustainability/LEED risks: Certification failure Certification failure Is contractor responsible for certification by contract?Is contractor responsible for certification by contract? Incomplete control over necessary documents for certificationIncomplete control over necessary documents for certification Hidden performance specifications arise from LEED letter template signatures by contractorsHidden performance specifications arise from LEED letter template signatures by contractors Performance failures due to other contractors Performance failures due to other contractors

15. Ujjval K. Vyas, Ph.D., J.D. Contractors Defraying or transferring risk Defraying or transferring risk Contracts Contracts Ensure that the contract specifications and the possible performance specifications in LEED documents are either in agreement or require additional compensation for providing performance warrantiesEnsure that the contract specifications and the possible performance specifications in LEED documents are either in agreement or require additional compensation for providing performance warranties Ensure that contracts downstream indemnify for losses resulting from failure to certify or failure to provide required documentationEnsure that contracts downstream indemnify for losses resulting from failure to certify or failure to provide required documentation

16. Ujjval K. Vyas, Ph.D., J.D. Contractors Defraying or transferring risk Defraying or transferring risk Select subcontractors who are experienced and familiar with LEED issues Select subcontractors who are experienced and familiar with LEED issues Select alternative project delivery methods that provide greater control over the whole project Select alternative project delivery methods that provide greater control over the whole project Pay attention to the construction experience and financial viability of the owner to avoid mismatched expectations, especially with non-profits Pay attention to the construction experience and financial viability of the owner to avoid mismatched expectations, especially with non-profits

17. Ujjval K. Vyas, Ph.D., J.D. Contractors Should contractors develop LEED capabilities? Should contractors develop LEED capabilities? Yes, if they want to be responsive to the changing marketplace Yes, if they want to be responsive to the changing marketplace Yes, if they want to penetrate new markets Yes, if they want to penetrate new markets No, if their particular niche is generally unaffected civil engineering works for example No, if their particular niche is generally unaffected civil engineering works for example Yes, if some segment of their project areas will be affected Yes, if some segment of their project areas will be affected Maybe not, if they are already have capabilities beyond LEED, such as performance contracting or EPC contracting. Maybe not, if they are already have capabilities beyond LEED, such as performance contracting or EPC contracting.

18. Ujjval K. Vyas, Ph.D., J.D. Design Professionals Sustainability/LEED advantages: Sustainability/LEED advantages: May increase role of architect/design professional in the construction process May increase role of architect/design professional in the construction process Intangible increase in self worth, especially for the disproportionate number of architects involved in LEED Intangible increase in self worth, especially for the disproportionate number of architects involved in LEED If design professionals accept greater risk, such as architect led design-build, LEED may be an entrée to recapturing a greater share of control over building construction If design professionals accept greater risk, such as architect led design-build, LEED may be an entrée to recapturing a greater share of control over building construction Possible increase in revenues for providing oversight of LEED certification process via AIA B-214 Possible increase in revenues for providing oversight of LEED certification process via AIA B-214

19. Ujjval K. Vyas, Ph.D., J.D. Design professionals Sustainability/LEED risks: Sustainability/LEED risks: Certification failure Certification failure Design defectsDesign defects AIA B-214 and definition of professional services as leading to possible exclusion by carrierAIA B-214 and definition of professional services as leading to possible exclusion by carrier Longer tail for liability since certification may not obtain until long after project is completeLonger tail for liability since certification may not obtain until long after project is complete Warranties Warranties Provision of hidden warranties in signing LEED letter templates required for certificationProvision of hidden warranties in signing LEED letter templates required for certification Warranty language vitiates E & O coverage for design professionalsWarranty language vitiates E & O coverage for design professionals Standard of Care Standard of Care Voluntary and involuntary increase in standard of careVoluntary and involuntary increase in standard of care

20. Ujjval K. Vyas, Ph.D., J.D. Design Professionals Defraying or transferring risk Defraying or transferring risk Consider carefully if the design professional should take on any contractual responsibility for certification via AIA B-214 or otherwise Consider carefully if the design professional should take on any contractual responsibility for certification via AIA B-214 or otherwise Any design professional sub-consultants should indemnify for losses associated with failure of LEED certification Any design professional sub-consultants should indemnify for losses associated with failure of LEED certification Do not voluntarily increase the standard of care through hopeful language; increased standard of care may create coverage and defense issues Do not voluntarily increase the standard of care through hopeful language; increased standard of care may create coverage and defense issues Do not sign LEED letter templates without adding language to underlying contract which defines the signatures provided on the letter templates as only a professional opinion and disclaim any warranty implications Do not sign LEED letter templates without adding language to underlying contract which defines the signatures provided on the letter templates as only a professional opinion and disclaim any warranty implications

21. Ujjval K. Vyas, Ph.D., J.D. Design Professionals Should design professionals act as the primary entity for acquiring LEED certification? Should design professionals act as the primary entity for acquiring LEED certification? Unclear Unclear Design professionals do not provide the kinds of warranties of performance that the owner is seeking; only contractors commonly provide this guaranteeDesign professionals do not provide the kinds of warranties of performance that the owner is seeking; only contractors commonly provide this guarantee

22. Ujjval K. Vyas, Ph.D., J.D. Project delivery selection Design-build as preferred method Design-build as preferred method The integrated process that is at the core of LEED already mimics the design-build model of decreased adversarial interaction in the construction process The integrated process that is at the core of LEED already mimics the design-build model of decreased adversarial interaction in the construction process Single point responsibility means the owner can get the kinds of warranties desired without fear of complex multiparty litigation Single point responsibility means the owner can get the kinds of warranties desired without fear of complex multiparty litigation Single entity has control of the process and the required documentation through privity chain Single entity has control of the process and the required documentation through privity chain Insurance issues are no longer bifurcated into CGL and E&O coverage areas Insurance issues are no longer bifurcated into CGL and E&O coverage areas Any concerns on the part of the owner for independent oversight can be solved by engaging an owner representative Any concerns on the part of the owner for independent oversight can be solved by engaging an owner representative

23. Ujjval K. Vyas, Ph.D., J.D. Marketplace Changes Increased presence of contractors in shepherding LEED certification and provision of LEED guidance to owners Increased presence of contractors in shepherding LEED certification and provision of LEED guidance to owners Competition between Green Globes and USGBC may create instability for owner decision-making Competition between Green Globes and USGBC may create instability for owner decision-making Savvy owners may expect sustainability services without a premium from design professionals Savvy owners may expect sustainability services without a premium from design professionals The transformation of buildings from lowest cost and short-term to high-performance may increase the marginalization of architectural designers The transformation of buildings from lowest cost and short-term to high-performance may increase the marginalization of architectural designers Real state bubble may hurt or help sustainability; will have to wait and see Real state bubble may hurt or help sustainability; will have to wait and see Design professional firms not responding to the market demand for sustainability will be at a serious competitive disadvantage Design professional firms not responding to the market demand for sustainability will be at a serious competitive disadvantage On the other hand, firms pursuing sustainability will have a distinct market advantage On the other hand, firms pursuing sustainability will have a distinct market advantage

24. Ujjval K. Vyas, Ph.D., J.D. Final thought Sustainability, in its many guises, is here to stay Sustainability, in its many guises, is here to stay The firms that manage this opportunity and the attendant risks will increase their share of the market The firms that manage this opportunity and the attendant risks will increase their share of the market Like the firms that said CAD was a fad, firms ignoring sustainability do so at their peril Like the firms that said CAD was a fad, firms ignoring sustainability do so at their peril The risks, like most of the other risks in the building process, can be managed but require active engagement The risks, like most of the other risks in the building process, can be managed but require active engagement