Things To Keep In Mind When Entering a Green Building Contract

Last week, we published an article identifying some Things That Can Go Wrong On A Green Building Project.    To prepare for these potential problems (and others), here is a list of things you should keep in mind when contracting for a green building project:

1)    Define Things: Terms like ‘sustainability,’ ‘green certification’ and ‘high performance building’ do not have any universal meanings.   Clearly define the goals of the building and project.   Consider adopting a rating system, and specify the system and the version.

2)    Designate a responsible party for certification:  A green/LEED coordinator can go a long way, designating someone who will be responsible for coordinating all parties, analyzing the work to ensure compatibility with the rating system, and put together all the paperwork required on the project.

3)    Responsibility Matrix: Create a “matrix” of who will be responsible for what.   This will at least mitigate the finger-pointing if or when something goes arwy.

4)    Payment Issues.   An especially important consideration for contractors:  Be cautious about tying certification with substantial or final completion.   Certification may never come, but in all cases, it could take between 6-18 months after substantial completion to get certified.   That’s a long time to have money withheld – and this will create payment problems with subs and suppliers.   If nothing else, make sure your contracts up and down the chain have the same payment timeframes and expectations.

5)    Know Vendors and Products.   These technologies are new and can be complex.   Don’t subscribe to a technology without investigating.   Get to know the products and manage the expectations of the owner.   For a discussion of how these new green technologies can present problems, see Paul Beers’ guest post on Chris Hill’s Construction Law Musings.

6)    Consequential or Specific Damage Waivers (LDs).   Damages for failure to certify or for failure to meet certain benchmarks may be murky.   Consider waiving consequential damages, and call out these specific expectations and considering waiving those damages or presenting LDs for them.  For a discussion about whether a consequential damage waiver is effective for green building damages, see this blog post: Is Failure To Achieve LEED Certification Consequential Damages?

7)    Flow Down.  Make sure your obligations up the chain, go down the chain.

ConsensusDOCS v. AIA – Form Contract Wars

While attending the Associated Owners & Developers 14th Annual Construction Industry Conference, entitled How Owners and Contractors Can Control Project Risk, here in New Orleans today, I sat in on a informative session regarding ConsensusDOCS. The session was moderated by John Orrison. David Hendrick, Daniel Lund, Jeff Paris and William Steinhardt were the featured panelists.

The panel was discussing the pros and the cons of the newest version of the ConsensusDOCS series recently released. AIA (American Institute of Architects) form documents have dominated the construction industry for many years. Due to the AIA dominance, others in the industry sought out an alternative and the ConsensusDOCS were born in 2007.

Many experts believe that the AIA standard form contracts are drafted to protect the Architect. Owners and Contractors feel like there is not much protection for their interests in AIA forms. AIA documents are formed on the premise that an owner will seek out a qualified architect to begin a project, thus placing more liability and responsibility on that architect. The contract documents should be drafted to protect this individual.

ConsensusDOCS came about from a different premise. ConsensusDOCS are more Contractor friendly and look after his interest along with the owner. According to ConsensusDOCS, they have formed a “Coalition of 28 Leading Industry Associations.” This coalition is made up of contractor, subcontractor, owners, estimators and surety bond producers among others.

From the expert panel there was much discussion of the advantages and disadvantages of each type of form document. Both sets of form documents are alike in the following ways: both have many overlapping provisions, both advise the purchaser of the documents to seek legal counsel and both have limited uses.

ConsensusDOCS claims to have an industry first with its form 310 “Green Building Addendum.” This is the first of its kind and something that is needed with the rise of green projects and interest. More on this form at Christopher Hill’s blog.

Overall it is smart to seek out legal counsel during the contract formation phase of any project. Whether it be AIA or ConsensusDOCS, the documents that these organizations provide are simply a starting place. Contracts need to be tailored to fit the type of project perfectly. Otherwise, avoiding a visit to an attorney early on could result in seeing him an awful lot when a dispute arises. An analogous saying form the medical world fits perfect here, “an ounce of prevention, is worth a pound of cure.”

There is no concrete answer as to which documents are better, but I’m sure Architects will stick with AIA and Contractors will favor ConsensusDOCS.

Model Disclosure Statement Required in Washington To Protect Lien Rights When Contracting With Owner

Ask yourself these three questions:

1)     Are you a contractor of any sort?

2)     Did you or do you contract directly with the property owner on any construction project(s)?

3)     Is the residential project’s contract more than $1,000.00, or commercial project’s contract less than $60,000.00?

If you answered yes to these three questions, pay very close attention here.   You must deliver a Model Disclosure Statement to the property owner before beginning work.

The Model Disclosure Statement is furnished to contractors by the Washington Department of Labor and Industries.   It’s very, very easy to fill-out.

You must furnish the form to the property owner, have the property owner sign it, and keep a copy of the signed form in your files for a “minimum of three years.”

If you fail to do this, not only do you lose the right to file any mechanics lien on the project, but you can also be fined by the Labor & Industries, and may be in violation of Consumer Protection laws.

Unfortunately, too few contractors in the State of Washington are aware of this requirement.   If you do business directly with property owners, get your hands on this form and present it to the owner at the beginning of every project.

Download the form from the Labor and Industries by Clicking Here.

Examples of Things That Can Go Wrong on a Green Building Project

Green Building is all the rage in the United States.   Whether it be a LEED project, or just a promise to the property owner to build or make a building more efficient and sustainable, as 2010 passes onto 2011, those in the construction industry are quite likely to run into projects with at least some green elements.

When bidding, contracting and working on these projects, it’s important to know what might go wrong.   After all, if you have no idea what things can go wrong, you have no way to prepare for them (or charge for the extra risk).

There’s no way to enumerate all of the risks…but here are a few to get you thinking about it:

1)  Vegetative Roofing: In some areas, these so-called “green roofs” are becoming popular.  The most ambitious green roof program is likely found in Portland, which we’ve discussed in a previous post.   Essentially, vegetation is planted on the roof of a building to better insulate it, reduce the heat island effect in the area, and better control water runoff.   The downside?   Well, it’s quite a bit heavier than a standard roof, and the construction and design of the structure should accommodate the extra weight.

2)  Rainwater Runoff:   Plan on channeling rainwater into storing containers to use within the property as waste water?   Be sure to contract with someone with experience, because the control of rainwater is different than the disposing of it through ordinary guttering systems.

3)  Greenwashing: It’s popular to be green, and there’s an absence of real regulation prohibiting businesses from advertising its products and services as “green” – which, really, is undefined.  So, when incorporating a service or product into your technology, make sure you select vendors, products, services and the like that will live up to their marketing.

4)  New, Untested Technologies:   Even the stuff that isn’t fraudulently labeled green may still present problems, as many technologies advertised as green may simply not perform as expected, since the technologies and products are new and haven’t been tested over time.  The lesson?   Keep your vendors on the hook for promises made by their products, and be cautious about relaying promises that are uncertain.

5)  Human Interference: Green buildings and green technologies are not insulated from human intervention.   Especially considering energy performance, the human factor can be great – as humans are the ones that will control energy use (such as using more than the allocated energy amounts), and generally doing things that can affect energy use (covering windows, for example) .

6)  Certification Problems: Rating and certification system (like LEED) are not easy to guarantee.  The certification decision is left to a third party, certification can be taken away, and certification can be challenged.   Don’t be too concerned – many projects work toward a certification and get it.   But know the road ahead.

When Bidder on Public Project Defrauds the State, Louisiana 1st Circuit Refuses the State Any Remedies

In my view, the Louisiana First Circuit just rendered a very poor decision.   The decision was written by Judge William J. Kline (serving pro tempore) in the matter State of Louisiana v. Infinity Surety Agency, LLC, et al, 2010 CA 0123, Louisiana First Circuit Court of Appeal (Rendered September 10, 2010).

In Louisiana, when a successful bidder to a public works project fails to execute the contract within the specified time frame, the State has a right to retain the bid bond as liquidated damages.

So, what happens when the successful bidder represents that it could provide an acceptable performance…but through an unauthorized surety?    In such a case, the successful bidder is awarded the contract, but cannot proceed with work within the required time frame because of a failure to bond the project pursuant to the La. R.S. 38:2219 requirements.

A case last month out of the Louisiana First Circuit addressed this question, concluding that the State was not entitled to liquidated damages.

The reason?

Since the purported surety was unauthorized, the bid itself did not meet the statutory requirements of the Public Works Act.   The bid, in other words, was non-responsive and should have been rejected by the State.

What if the bidder made a misrepresentation – an outright fraudulent misrepresentation – that the surety had authority to bond the project and would in fact bond it?   The First Circuit says it doesn’t matter:

Although the State also argues that [the contractor and surety] should not be allowed to escape paying the penalty by its alleged fraud, there is no ambiguity in the statute.   The bid did not meet the requirements of the statute and is null and void.  When a law is clear and unambiguous and its application does not lead to absurd consequences, the law should be applied as written.

Doesn’t this remedy seem harsh, or maybe an absurd consequence?   After all, the contractor and surety defrauded the state intentionally….while the State was just guilty of an oversight, or was duped.   The First Circuit says this:

Admittedly, this conclusion seems harsh because in circumstances of this sort, when there are two breaches of statutory responsibility, one breach could be intentional and the other an oversight…Had the State rejected the bid up front, however, there would have been no delay in awarding the contract to the lowest responsible bidder.

I think the Court might have made a mistake here.   This explanation for the “harsh” conclusion is lacking of any good logic, acknowledging two breaches of statutory authority, but failing to acknowledge that maybe the State couldn’t have rejected the bid upfront…because it was lied to.

In this decision, the First Circuit has chosen to read one statutory mandate as more important than the other.  Namely, the First Circuit reads the duty of the State to reject non-conforming bids literally and without sympathy, but merely glazes over any statutory and legal requirement that the contractor and surety not commit a fraud on the State.

Further, the First Circuit ignores clear language elsewhere in the Public Works Act:  that if the bidder is awarded the contract, and does not perform, it forfeits its bid bond.   Here, clearly, the bidder was awarded the contract, and did not perform.   The conclusion that the bid might have been unresponsive because of a mistake in the bid or outright fraud, doesn’t change the facts:  the bidder won, and could not perform.

What about the State’s tort claim against the contractor and surety for the misrepresentations?  Surely, the tort claim would have merit – or at least be deserving of a trial….

Not so, said the First Circuit.   “The alleged tort claim should never have arisen,” it concludes, because the bid should have been rejected.

Promises To Pay Mean Squat To Your Lien Deadlines

Owed money on a construction project, but weary about filing a mechanics lien because the owner or contractor is promising to pay?

Well, as the promise to pay “tomorrow,” turns into “Friday,” and turns into “next week,” the time period available for you to file a mechanics lien continues to tick.   And in some instances, the time periods can be quite short.

It’s very important for contractors and suppliers to realize that these promises to pay do not extend the lien period.   You only have one shot to file your mechanic lien, and once the window closes, it will never re-open.

So, while a promise to make a payment is a significant comfort (it’s better than an outright refusal to pay), a business should be weary about relying on this promise and foregoing its right to lien.   The lien protections will disappear…and your client’s promises?   Who knows.

This article was originally posted on Zlien’s topic-specific Construction Lien Blog.

Is Failure To Achieve LEED Certification Consequential Damages?

The LEED Certification process can be quite complex.   It takes months after a project’s completion to get the paperwork process, the paperwork itself can be a heafty stack, and that’s not even taking into account the complicated points framework, the certification gray-areas, the de-certification process and more…. (Want a good discussion of all these frustrating and unanswered questions?  –  See our friend Chris Cheatham’s great Green Building Law Update Blog).

Since I’m a lawyer, the LEED rating system begs this question:   What happen is a project shoots for certification, and fails?   What are the damages?   Whose on the hook?

These are some intensive questions and I can spend a few posts trying to answer.    See some of our previous posts for discussions, including review of the the LEED tag, and this post:  Uh-Oh:  I Made A LEED Mistake and Don’t Know What To Do.

What I want to focus on in this post is an interesting point that I recently read in legal article hosted at  Legal Commentary:  Green Building Risks.   The well-written article, by attorney Martha Perkins, discusses some issues a contractor should keep in mind when entering a green building contract.

It is the following point, however, that caught most of my attention:

Generally, a contractor should include a disclaimer guaranteeing a particular outcome such as a green-building certification or specific energy efficiency. Failure to achieve a desired certification or a specific green performance is often deemed a consequential damage. As a result, ensure that consequential damages are waived.

Two things strike me.

First, her statement that certification failures are “often deemed a consequential damage” seems a bit off the mark.    I’m not saying that these failures will not be considered consequential damages – they may – but, I’m not aware of any case law on the issue.   I would be particularly concerned about advising a construction client that a simple waiver of consequential damages could plug this liability hole.

Second, however, is her opinion that a LEED Certification failure might be considered a consequential damage…and therefore, sometime waived out of many construction contracts.

Could this be the case?

Wikipedia, the great collection of legal definitions, defines consequential damages pretty well, as follows:

When a contract is breached, the recognized remedy for an owner is recovery of damages that result directly from the breach, such as the cost to repair or complete the work in accordance with the contract documents, the loss of value of lost or damaged work. Consequential damages (also sometimes referred to as indirect or “special” damages), include loss of product and loss of profit or revenue and may be recovered if it is determined such damages were reasonably foreseeable or “within the contemplation of the parties” at the time of the contract.

Looking at this issue from a big-picture standpoint and not getting bogged down with case-law, I think there is some argument on both sides of the issue.

On the one hand, failure to certify can be considered a damage caused to the owner directly from the breach.   Now, just as the owner may have to repair an improperly constructed wall, so too does the owner have to repair his building to achieve the proper certification (or take it without the certification and assume a credit).

On the other hand, a failure to certify certainly is different than an improperly constructed item within the building.  You sometimes can’t put a dollar figure on a certification failure to calculate a credit, and the “loss” may be more closely aligned with a loss of profit or revenue as a result of the certification failure.

I found this to be an interesting point made by Ms. Perkins…but not one that is settled.    What does everyone think about this question – a consequential damage, or no?   Anyone know of any case law on the topic?

Presenting At Green Legal Matters This Week in New Orleans

Here is a truth:  Green Building is not a fad.

Between 2005 and 2008, the Green Building Construction industry has grown by 500%, from a $10 billion industry to a $49b industry.   McGraw-Hill Trends Driving Change Report’s Green Outlook 2009 predicts the industry tripling between now and 2013, to a $140b market.

If you’re in construction, these numbers should get your attention.  Especially in this market.

The unavoidable marriage between the green and construction industries is why our construction law practice has paid very close attention to green legal issues.   We operate two topic-specific blogs on the topic (Louisiana Green Law and Northwest Green Law), and I’m a LEED AP.

The first ever conference focusing on the green industry’s legal issues is taking place this week in New Orleans, LA, Green Legal Matters.  I’m very excited to take part in the conference by speaking at two programs:

Thursday, 3pm – 4pm
Agreements for Smart Building Certification and Green Litigation Risks
Presenting with James D’Entremont, Phelps Dunbar

Friday, 11am – 12pm
LEEDigation:  The Impact of LEED 3.0, Litigation and Building Regulation
Presenting with Christopher Hill, Law Office of Christoper Hill

View all of the Green Legal Matters programs at this PDF link.

I have Keynotes put together for the presentations.

For the one on Friday with Chris Hill (check out his great construction law blog here:   Construction Law Musings), the presentation is available on my SlideShare account.  You can also view it right here:

As can you for the one on Thursday with James d’Entremont: