Green Building on the Rise

October 1, 2009

The construction industry has traditionally emphasized efficiency over environmental harmony. However, the trend toward “green building” is sweeping the country and changing this mindset dramatically. Whether green building is being encouraged for altruistic reasons or simply as a “politically correct” marketing technique, one thing is certain: Green building is here to stay. McGraw-Hill Construction estimates that green building will represent more than 10 percent of the nonresidential market by 2010. Subcontractors who quickly educate themselves and implement green building strategies will position themselves to successfully compete in a rapidly growing market and find that green is still the color of money.

What Is Green Building?

The goal of green building is to reduce the impact of construction on the environment and to promote human health and energy efficiency. Many proponents of green building believe that, for a nominal cost, dramatic operations and maintenance savings can be realized over the long run, in addition to a reduced environmental impact or “footprint.”

Frequently, but not always, the rating system used to evaluate green buildings is the U.S. Green Building Council’s LEED® system. (LEED stands for Leadership in Energy and Environmental Design.) LEED includes rating systems for different types of construction (e.g., homes, commercial, and institutional) and four levels of certification, ranging (from highest to lowest) from Platinum to Gold, Silver, and Certified. When an applicant (usually the project owner) seeks LEED certification of a building, a rating service company awards a certain number of points to the project based on different factors of design, construction, materials, water efficiency, and waste removal. Achieving one of the levels of LEED certification requires a collaborative approach throughout the project, because no single party on the construction team—owner, architect, contractor, subcontractor, or supplier—controls all the factors for which points may be awarded.

Subcontractors should be aware that green building may also mean something other than LEED certification. In recent years, a number of municipalities and states have adopted their own green building codes. For example, California adopted standards designed to achieve a reduction of 15 percent in energy and 50 percent in landscape water use. Other green rating systems exist as well.

What Are the Risks for Contractors?

For many subcontractors, the future business opportunities presented by green building are almost boundless, but as with any exciting opportunity, there are risks as well.

First, subcontractors should generally expect to incur many more hours of paperwork on a green building job as they need to document the “chain of custody” on materials and conform to other green building requirements. For example, the specifications may require a casework subcontractor to prove that the wood materials came from a local source. Contractors need to read the bid documents carefully and include adequate costs for these additional requirements in their bids.

Second, many bid documents will list a particular product or process to use to try to gain as many LEED points as possible. But what happens if the specified material (e.g., drywall from a source within 500 miles of the project) is not available in a timely fashion, or at a reasonable price? Will the subcontractor receive a time extension or a price increase to provide the owner’s desired product?

Third, some bid documents require subcontractors to attest to the quality of their work for LEED certification purposes. However, such a guarantee leaves subcontractors wide open to claims in case the project does not attain that level of LEED certification.

Because subcontractors don’t have the responsibility for all the factors, including design, that determine whether a building can earn LEED (or any other green) certification, generally they shouldn’t guarantee LEED certification or any given result. Unless acting as a true design-builder, a subcontractor is not hired to design and can only guarantee to build “per plans and specs.” Whether that design, as constructed, can achieve LEED or other certification is unknown and cannot be controlled by the subcontractor. Similarly, a certain end performance, such as energy savings, may be difficult to predict or control.

Design professionals should be reluctant to guarantee or promise certification results, as they do not control the waste stream or other construction efforts, nor do they know exactly how the third-party rating service will evaluate the submission for certification at the end of the job.

What Can You Do to Minimize Risk?

Subcontractors who want to make it clear they cannot guarantee results on a project seeking LEED certification might use simple contract language such as:

“Notwithstanding anything to the contrary, Subcontractor does not warrant or guarantee any result with respect to LEED certification.”

To avoid guaranteeing that material will secure points for LEED certification, subcontractors could insert language on submittals such as the following:

“With this submittal, Subcontractor makes no representation that this material will satisfy the requirements needed for LEED credit.”

Subcontractors will want to modify their force majeure clauses to entitle them to additional time in the event that a green source becomes unexpectedly unavailable, just as they are entitled to extensions in the event of an unexpected disaster or shortage.

Design professionals and design-builders may find it preferable to state that they will simply “endeavor to” achieve certification or exercise “good faith” efforts in that regard, rather than provide a guarantee.

How Should Risk Be Allocated and Insured?

All members of the construction team benefit from educating one another on reasonable expectations up-front before misunderstandings or conflicts develop. This is particularly true when dealing with an emerging subject like green building. Of course, there is always a risk of a claim on any project. Special green liability insurance is becoming available, and subcontractors should seek assistance from an experienced insurance professional to determine what policies are best for them in the event of a claim. Risk allocation on green building projects will become easier when ConsensusDOCS publishes its planned green addendum for construction projects. Set for release in late 2009, the addendum will help clarify the responsibilities and risk allocation on green projects.

Green building is far more than a fad and has the potential to dramatically improve the environment. As sustainability becomes increasingly important, subcontractors who adopt the strategies to work on green building projects will be well situated to compete against those unwilling to change.

This article originally appeared in The Contractor’s Compass and is reprinted with permission of the American Subcontractors Association and Naylor, Inc.

Disclaimer: This discussion is generalized in nature and should not be considered a substitute for professional advice. Readers are advised to contact counsel before embarking on any of the options discussed in this article.