LEED-igation: Fact or fiction?
By Bart Reed
The Daily Record Newswire
While many people in the Pacific Northwest claim to have seen Sasquatch or Bigfoot, few have any evidence to substantiate the existence of this fabled creature. Nevertheless, hope rings eternal for some folks that one day this beast will be cataloged as a genuine example of the “missing link” between man and ape.
Applying this motif to the legal issues surrounding green construction and design claims, or “LEED-igation,” many people in the industry argue that such claims are nothing more than “old wine in new bottles” — they require nothing more than the identification and analysis of issues and claims arising from or routinely encountered on more conventional projects. Plus, the existence of such claims, many people argue, simply has not materialized — at least not enough to evaluate future green project issues and disputes.
The possible reasons are as varied as they are many: the lack of familiarity with the processes and materials used in green or Leadership in Energy and Environmental Design projects, the “integrated” approach used for such jobs (fostering a more collaborative, less adversarial construction and design team), the increasing preference to resolve disputes through settlement negotiations or forms of alternative dispute resolution instead of litigation, and the lack of maturity of LEED-related claims (LEED projects may still be in their infancy and have yet to present the tail obligations and operation and maintenance issues for the development of claims).
However, there are just as many reasons why green project participants – owners, contractors and designers – should stay wary of potential liability emanating from any green or LEED project they are involved in. Contributing factors to “LEED-igation” and claims include:
• Unyielding and elevated (if not justified) owner expectations of environmental, financial and other benefits
• Targeted “carrot and stick” project drivers (e.g., monetary or tax incentives and governmental mandates)
• Uninformed, inexperienced and/or unproven design professionals, contractors, subcontractors and suppliers
• Untested and unverified green products and technologies and quickly evolving design/construction practices and building science
• “Greenwashing” (using marketing claims or statements to mislead consumers as to the environmental benefits or attributes of a company’s “green” products, services or practices) in violation of the Federal Trade Commission Act or the FTC’s “Green Guides”
• Form agreements failing to properly allocate responsibility between the parties and mitigate the risks unique to green design and construction
• Current economic conditions, resulting in low bids on government-funded projects and monies reserved to investigate/audit these projects
• Internal LEED minimum program requirements, or threshold characteristics a project must possess to be eligible for LEED certification, and risks associated
with possible decertification by LEED governing bodies or third parties
• Unaddressed or inadequately defined standard of care for design services required on a green or LEED project
• Ill-defined substantial completion clauses in contracts, which may impact warranties or statute of limitations arguments
Indeed, certain contractual safeguards must be in place — well before contract execution and work begins – to anticipate the myriad contingencies and unique challenges, risks and damages that may arise during or after project completion. And standard form agreements do little to address the special aspects of a green or LEED project.
For instance, standard contract forms typically provide for a mutual waiver of consequential damages — those that arise indirectly from a contract breach but were foreseeable by the parties at the time of contract execution, including lost profits, loss of use and diminution in value. From the owner’s perspective, a waiver of consequential damages could foreclose the owner from the right to recover damages on a green or LEED project that are greater in scope and type than those arising from a conventional construction project.
Additionally, given the uncertainty concerning the nature and scope of damages that may result if LEED certification is not achieved or if the building is not as “green” as required or specified, the parties should consider a liquidated damages clause for green damages. Liquidated damages are largely not addressed, if at all, in standard form agreements, particularly in the context of green design and construction.
Next, achievement of LEED certification, or satisfaction of other sustainable building standards, is a multi-party effort that involves at least the owner, architect and contractor. No one party holds all the responsibility, and care must be taken to avoid contract clauses that impose overall responsibility on only one party to achieve LEED certification. The parties should identify the scope of work and specific tasks required to satisfy the green standards, and then assign them to the party best suited to accomplish them.
While the categories of claim types may fall under familiar legal headings (e.g., breach of contract and tort claims), claims in the green construction and design arena are entirely different in nature and degree, and therefore warrant careful attention in early contract drafting. Failure to recognize and appreciate the unique issues, risks and challenges attendant to LEED or other green projects will undoubtedly bring the elusive and mysterious notion of “LEED-igation” to reality.
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Bart Reed is an attorney and LEED accredited professional with the construction and design group of Stoel Rives’ Seattle office. Contact him at 206-386-7568 or bwreed@stoel.com.
