1. Angela R. Stephens, LEED AP +BD&C, GA-CR ® Stites & Harbison, PLLC Chris Cheatham ClaimKit American Bar Association Forum on the Construction Industry 2013 Mid Winter Meeting

2. Growth of Green Building Lack of Litigation Developments increasing likelihood of suits Claims, Green $$$ Damages Ways to Reduce Risks

3. Yes, People are still building green buildings

5. 1) Energy/Operational Cost Savings 2) Tax Incentives 3) Financing 4) Healthier Workspace 5) Increased Productivity 6) Positive Press 7) Better for Environment Environmental Social Economic

6.  $350M Renovation  Cut electricity use by 80%  Save 24M gallons of water each year

7.  $20M Renovation  Cut energy costs by 38%  Seeking LEED Platinum Status

8.  Team Mentality

9.  Lack of Enforcement  By USGBC  By Owners  Once certified... Always certified.

10. 10  H.S. bldg committee alleged award of LEED Gold was not justified  Complaint with USGBC  Claim - failed to satisfy energy and atmosphere prerequisites  USGBC hired two engineering consultants to review credits issued  Appeal Denied

11. Recession Lack of assets to fight.

13. State Laws Codes Incentives Fed. Laws

14. 20 States Mandate 4 Encourage

15. STATE OF ARIZONA: EXECUTIVE ORDERs 2005-05 2008-29 2-11-05 / 12-16-08  State Funded Buildings:  Design and construct to derive 10% of their energy from a renewable resource.  Meet energy efficiency standards established by law.  LEED Silver

16.  Common law  Breach of contract  Breach of warranties (express and implied)  Majority of States - No express damages

17. Potential Green $$$ Damages  Failure to achieve certification required by State Law?  Cost to repair v. diminution in value  Operational costs  LEED Certification Premiums paid  Construction or Design Team  LEED Certification fees

19.  Effective 1/1/11:  Reduced water use  Reduced energy use  Use of recycled materials  Applies to residential construction

20.  AHSRAE, USGBC, IESNA  Applies to all buildings except low-rise residential  Similar to LEED

21.  Application  Sale of Property**  Change in Occupancy  Repairs/Renovations  Even in minor – HVAC and energy reqs  Not for residential  ASHRAE 189.1 path

22.  Executive Order 13514 – Net Zero by 2030  All federal agencies  GSA currently requires LEED Gold  Creation of Own Code?

23. Potential Green $$$ Damages  Failure to achieve certification required by Codes?  Penalties – each day separate offense  Misdemeanor or civil infraction  Reasonable Attorney’s fees  Plus...

24. Potential Green $$$ Damages  IGCC Optional Ordinance – if adopted – forfeiture of:  Performance Bond  Irrevocable Letter of Credit or Cash  Plus...

25. Potential Green $$$ Damages  Cost to repair v. diminution in value  Operational costs  LEED Certification Premiums paid  Construction or Design Team  LEED Certification fees

26. Green Bonds Tax Incentives

27.  San Mateo, CA  Commercial or industrial buildings > 3000 sq ft  $5,000 bond  If don’t comply = forfeiture

28.  Miami, Florida  All new buildings more than 50,000 sq ft  Amount of performance bond based on sq ft  50,000 – 100,000 = 2% total cost of construction  101,000 – 200,000 = 3%  > 200,000 = 4%

29.  Washington D.C. Green Building Act  2012 – LEED Certification  nonresidential and post-secondary educational facilities  Failure to achieve:  Forfeit Performance Bond up to $3,000,000.00  Plus fines by Mayor

30. www.dsireusa.org

31.  Nevada - Property tax abatements:  LEED Platinum = abatement 35% of taxes imposed  Gold = 30%  Silver = 25%  New Mexico – tax credits  LEED Silver = $3.50 / sq.ft.  LEED Platinum = $6.25/ sq.ft.

32. Potential Green $$$ Damages  Failure to achieve certification?  Lost tax incentives

33.  $7.5 Mill – 23 condo units  Attempting LEED Silver  Owner sought $635,000 in lost tax credits under state-level green building program  Case settled

34. B214 CD 310 DBIA Exhibit

35. Who is responsible for green goals? What happens if not achieved?  Varies by contract

36.  Architect = LEED AP  manages the LEED documentation  prepares LEED Certification Plan  ID’s participants and their roles.  crucial in any contract  Green “goals” - not mandates

37. Owners may point to: 2007 AIA Code of Ethics - CANON VI Members should promote sustainable design and development principles in their professional activities. Ethical Standard 6.1 Sustainable Design: In performing design work, Members should be environmentally responsible and advocate sustainable building and site design.

38. Or point to: 2007 NSPE Code of Ethics Engineers are encouraged to adhere to the principles of sustainable development in order to protect the environment for future generations.

39. Potential Green $$$ Damages  Failure to achieve green goals under B214?  Contract Silent

40.  GBF – Only party liable??  Article 7.7 - Project Participants shall perform elected green measures identified as their responsibility  Article 8.3 – No Project Participant other than the GBF shall be liable or responsible for the failure to achieve Green Status

41. No One Party Control of Points/Goals

42. Potential Green $$$ Damages  Failure to achieve Green Status under CD 301?  Refer to underlying contract  If waived in contract, lists consequential damages that are waived:  Lost profits  Increased operating and maintenance costs  Lost tax incentives  Lost marketing opportunities

43.  Owner and DB can agree to incorporate sustainable elements or achieve a designated level of certification  Contains a Remedies Section  Parties agree to appeal – pd for by Owner  Selection of Remedies

44. Potential Green $$$ Damages  Selection of Remedies under DBIA Exhibit?  Waiver  Liquidated Damages – sole remedy  Limited Obligations to Cure – max $$$  Remaining contingency  Share of savings (if GMP contract)  Set amount

46.  Biggest and most environmentally friendly structure  $2 Billion in Green Bonds from US Treasury

47.  $238 Million in Green Bonds from Syracuse Industrial Development Agency  Private investors purchased in exchange for:  Interest  Tax free status on interest  Developer received tax-free loan  $120 Million in savings

48.  To get $238 million in Green Bonds :  “demonstrate, and provide written assurances” that the project would receive LEED certification.  project had to include “a brownfield site”  meet “goals for conservation and technology innovation.”  Reduced electric consumption  Reduced sulfur dioxide daily emissions  photovoltaic capacity  fuel cell energy generation capacity

49. Destiny scrapped renewable energy features No plant running on biofuel No expansive solar panels

50.  http://www.syracuse.com/news/index.ssf/2012/03/irs_says_de stiny_usa_green_bon.html Bonds not dependent on actual achievement of green building and renewable energy goals

51. Potential Green $$$ Damages  If IRS had a different ruling?  Forfeit $2.38 M in developers reserve fund  Revoke tax exempt status - $120 M savings  Revoke tax exempt status from investors  MESSY

52. 1 st to obtain LEED Platinum Certification Parallams exposed to the weather...

53.  2003 – water intrusion  2009 – widespread rot  Parallams not treated properly  or treatment not suitable  Foundation, architect and contractor settled and sued Parallam supplier  Breach of contract  Indemnity  Contribution  Negligent misrepresentation  Negligence

54. Potential Green $$$ Damages  Demand to Parallam supplier = $6 M in damages  Investigation  Removal and replacement  Lost revenue  Loss in value of Center  Attorneys fees

55.  Action dismissed - statute of limitations

57.  Marketed as LEED Gold Building  Cutting edge green technology  Complaint  Not enough energy savings  = additional costs  = decreased unit values

59. Building Not Green Enough?  Cost to repair v. diminution in value  Operational costs  LEED Certification Premiums paid  LEED Certification fees  Code penalties  Attorneys fees

60. Potential Green $$$ Damages  Forfeiture of:  Performance Bond  Irrevocable Letter of Credit or Cash

61. Potential Green $$$ Damages  Lost tax incentives  Lost marketing opportunities

62. Potential Green $$$ Damages  Liquidated Damages – sole remedy  Limited Obligations to Cure – max $$$  Remaining contingency  Share of savings (if GMP contract)  Set amount

63. Potential Green $$$ Damages  Investigation costs  Lost revenue during renovations  Reduced rental rates  Financing costs

65. New Risks? Clients on a tight rope? Tips to minimize the risks.

66. Don’t guarantee: “reduce operating costs” “healthier and more productive occupants.”

67. Express Warranty Do Not Guarantee Level of Certification

68.  Do not guarantee certification  It is a Goal, Not Promise  Except as required by law.  Warrant that Work will be in accordance with:  The Contract  Industry Standards

69. Marketing Efforts:  Energy/Operational Cost Savings  Healthier Workspaces  Increased Productivity Can these claims be verified? LEGAL ISSUE #2: Implied Warranties

70.  Fraud  Negligent Misrepresentation  False Advertising (Lanham Act/FTC)  FTC Green Guide  Consumer Protection Acts

71.  False Statements:  §43(a) of the Lanham Act  Deceptive trade practices (under New York law).  New York’s False Advertising Act,  false advertising, unfair competition, and unfair business practices under the common law.

72.  LEED buildings use less energy  “LEED is providing third-party verification that a building or community was designed and built using strategies aimed at improving performance across all the metrics that matter most: energy savings”  LEED-certified buildings and other allegedly “green buildings” “Boost Employee Productivity.”

73.  Manage expectations -Don’t over-promise  Disclaim promises – “All warranties are limited to those expressly stated in the Contract. No other warranties, written or implied shall be binding or enforceable against _____________.”

74. Will you be held to higher standards of care? Architects/Engineers – suppose to promote sustainable design and construction

75.  Identify the standard of care:  ______ shall not be held to a heightened standard of care on the Project.  The ____ shall perform its services consistent with the professional skill and care ordinarily provided by ___ in the same or similar locality under the same or similar circumstances.

76. Project LEED/ US ASHRAE 189.1 IGCC Green Globes Other? Building Codes Zoning Laws Owner’s Standards Energy Star

77. No One Party Control of Points/Goals Obtain buy-in of all effected parties LEGAL ISSUE #5: Identify Participants, Their Roles and Responsibilities.

78. LEGAL ISSUE #5: Identify Participants, Their Roles and Responsibilities  Add this to LEED Addendum

80. LEGAL ISSUE #6: Insurance Questions over Insurability of LEED projects Contracts agreeing to provide insurance that is not available See your agent

81. .. LEGAL ISSUE #7: LEED Certification Documentation Find a dedicated professional Delineate responsibilities in the contract

82. LEGAL ISSUE #8: Delays  Green materials - availability  Skilled workers  Longer durations for installation of new technologies  Time to obtain certification from USGBC  Necessity of Appeal of Ruling

83. LEGAL ISSUE #8: Delays – What can you do? Limit responsibility Include a Force Majeure clause

84. LEGAL ISSUE #8: Delays – What can you do? Define Substantial Completion Don’t make SC dependent upon achieving LEED Certification Waive Consequential Damages

85.  Long-term maintenance issues  Who is responsible for maintenance?  What happens if mfg goes out of business  What happens if component malfunctions?  Provide a Notice and Opportunity to Cure clause in your contract.

86.  VE and Change Orders may effect the ability to achieve certain points or green measures.  A/E or LEED AP should review changes to plans (COs/ VE) to see how goals are affected.  May want to consider establishing time frame for review and approval of COs

87. If LEED AP is an independent party? No assets? No insurance coverage? What can you do?  Talk with owner regarding LEED AP selection.  Ask whether the LEED AP is insured.

88.  Define source of standards and data to be used for computer modeling.  Do not guarantee that the building will perform in accordance with the models.

89.  Be aware of time limitations established by GBCI  25 business days to appeal the results of the Final Review

90. LEGAL ISSUE #13: Specify who will pay for LEED Appeals “___ shall not be responsible for any costs associated with the appeal of any LEED Credits.” $500 per credit appealed

91. Waiver of consequential damages

92.  Certification level may take months.  Don’t tie payment to the achievement of a certain certification level  Owners may insist on withholding some retainage until all paperwork and appeals processes are complete.