The Added Liabilities Associated with Building “Green”

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The Added Liabilities Associated with Building “Green”

by Jeff Slivka, ARM, CRIS

Executive Vice President& Chief Operating Officer

New Day Underwriting Managers LLC

As we enter the next phase of “eco-friendly” building, increasing amounts of pressure are continually being placed on designers and contractors to meet ongoing green demands with either certified or guaranteed results. Combined with the need for a single point of responsibility – which is commonly the general contractor – there also exists the added opportunity for risk and exposures that were oftentimes not even considered just a few years ago with traditional construction projects.

Consequently, contractors should carefully consider their exposure to liabilities when contractually agreeing to meet green outcomes; using innovative, but yet relatively new or untested products; and/or even utilizing existing materials in unproven ways that require green results.

Meeting Client Demands for Green Results

First of all, never underestimate the intensity of the demands, expectations and motivation of project owners. For instance, here are several examples of changing laws and building requirements that have either already or can potentially impact contractor risk exposures.

1) Shaw Development vs. Southern Builders represents the first “green” lawsuit and stems from the contractor failing to file the timely and necessary documentation regarding LEED Certification with the Maryland Energy Administration. As a result, the owner sued the contractor for $635K in tax credits, which was denied by the State of Maryland when the 23 unit condominium was completed in 2006. Although eventually settled out of court, the matter could have been avoided if the contractor had better understood Maryland tax credit laws and the owner’s goals before accepting the work and the ensuing responsibilities.

2) Contractors operating in Los Angeles must now be aware of the new green building principles recently adopted by the Los Angeles Unified School District and developed by the Collaborative for High Performance Schools (CHPS). Subsequently, all bids must reflect requirements for increasing student performance by as much as 25 percent, lowering operating costs by as much as 40 percent and improving student and teacher health.

3) Furthermore, the same awareness must be used with commercial projects. This is especially true when owners expect to charge above-market rates for LEED-certified space or environments that offer the promise of improved employee performances due to the greening of work areas. In addition, this is an area that many contractors have never faced — “occupant performance.” Although it is uncertain if or when it will become the basis of future lawsuits, it is more than likely that contractors will be involved in the litigation if issues develop.

Going Green with Unproven Materials

The desire for LEED certification by facility owners has caused many contractors to try new, innovative products and materials in environments that have yet to test their efficacy. As a result, the impact of product failures can grow exponentially as they contribute to the loss of LEED certification points.

As an example, a contractor recently used a new adhesive containing very low volatile organic compound solvent with a floor composed of wood (bamboo). Unfortunately, while the adhesive was environmentally-friendly, it did not adhere to the bamboo causing the floor to eventually separate and buckle.

A great deal of planning and diligence should accompany the use of custom-made products or materials that are purchased from offshore suppliers or not readily available for replacement if necessary. In such cases, delays and failures can not only be costly, but include the inability to obtain the desired LEED points.

Once again, common-sense is mandatory when discussing the utilization and potential pitfalls of new products and materials with an owner. This is essential for gaining their buy-in and trust as well as setting expectations that minimize the potential exposure if problems arise. In short, owners hate surprises that cost them time and money. So, never start a project without detailed, up-front discussions that are continually followed up with an abundance of communication designed to specifically keep the project on track.

Using Established Materials in Unproven Ways

Despite the growing need to use green materials in new projects, contractors must constantly be aware of greenwashing,” which reflects the false or misleading marketing claims of products re-packaged and/or re-marketed as “eco-friendly” solely to cash in on the movement’s popularity. So, never fail to question the authenticity of product claims when the company’s credibility as well as the project’s bottom line are at stake. And, while “greenwashing” can occur with almost all products, it can also be argued that even greater dangers lie with the use of “established” products. This is simply because we are more apt to accept “green” marketing claims when dealing with familiar items and materials.

In conclusion, due diligence has never been more important to the building industry than in today’s “green movement” marketplace. The wrong choices coupled with the general lack of understanding of owner expectations can not only lead to a series of costly building mistakes, but also litigation that can either negatively affect bottom lines for years or even ruin the unprepared contractor. In addition, do not ever hesitate to ask the proper questions or recheck the specifications of products used especially for green purposes. When in doubt, it is also imperative to consult with professionals and ensure the proper protection and risk management procedures are in place before projects begin.