Commentary: Tips to Lessen Risk in Renovation and Green Building Contracts

Commentary: Tips to Lessen Risk in Renovation and Green Building Contracts

Owners and other users of commercial real estate are increasingly incorporating sustainable practices in their construction and renovation programs in order to realize the benefits of “going green.”

Green building projects present unique construction risks and issues that must be thoughtfully considered and documented. Most form contracts, however, including architectural agreements, do not address or do not adequately protect against these unique risks. While each project is different, below are some basic issues that should be considered.

1. Avoid inserting contractual warranties in the architect’s agreement — they may not be insurable.

The architect’s scope of services should describe the process for achieving the desired level of green certification, not the result. Requiring the architect to achieve a certain level of certification, such as LEED Silver, could be construed as a contractual warranty. Breaching it may not be insurable under the professional liability policy, which likely covers only negligent acts or omissions.

2. Include indemnification for patent infringement claims.

With the proliferation of new green products and technologies, a greater likelihood of patent infringement activity exists on green building projects. Thus, it is important for the architect to indemnify the owner for patent infringement claims arising from use of products specified by the architect.

3. Secure ownership rights in documents required for certification.

The owner should ensure it has ownership rights in submittal documents required to be submitted to third parties for certification, regardless of ownership rights in technical design documents, which is often a heavily negotiated issue. Otherwise, the owner may be unable to obtain the required certification documents if a dispute arises with the architect.

4. Include commissioning specifications in the architect’s scope.

To obtain certification under certain ratings systems, such as LEED, some building systems must be “fundamentally commissioned” to ensure they are installed, calibrated and perform as intended. The architect’s scope of services should include development of the commissioning specifications and coordination of activities with the commissioning consultant.

5. Extend the traditional warranty period to include issues occurring during certification.

Most construction contracts provide for a one-year warranty call-back period. For green building projects, these standard warranty periods should be extended to include issues which may arise during the certification process but after the standard one-year warranty call-back period.

6. Include key certification requirements in completion definitions.

Standard definitions of “substantial” and “final completion” in construction contracts should be revised, or additional milestones added, to include key certification requirements such as delivery of required submittals and documentation. This will help to ensure the project is completed in compliance with prospective certification.

7. Align final completion and payment dates with certification.

Because entitlement to certain points under most green certification standards such as LEED can be established only after construction is complete and facility operation has occurred for a period of time, in some cases, final completion and payment dates should be aligned with the issuance of certification.

8. Take into account foreseeable damages.

Failing to achieve a certain standard or certification can have significant financial consequences, such as the loss of available tax incentives. Appropriate carveouts from consequential damages clauses should be incorporated in form agreements and negotiated on a project-by-project basis to protect against foreseeable damages.

9. Protect against the unavailability of sustainable materials required for certification.

Because the use of specific sustainable materials is typically an essential requirement for certification, unavailability of sustainable materials should be a non-compensable delay. Owners should also require contractors to follow proper quality control procedures to ensure sustainability requirements are being followed. For example, contractors should submit a staging site plan that designates areas where deliveries of materials, such as FSC-certified wood, will be temporarily staged for review and approval to ensure their compliance with sustainability and project requirements before installation.

10. Ensure proper builders’ risk insurance is obtained.

Sustainable materials and methods may come at costs that are higher than standard, and standard builders’ risk policies may not provide coverage for their replacement. Obtain adequate coverage that will ensure that, following a loss, the project may be rebuilt to targeted sustainability standards.

Brian K. Fielden is a partner with DLA Piper LLP (US) practicing construction law, both transactional and litigation. He has been accredited as a LEED AP (BD+C) by the Green Building Certification Institute. He can be reached at 404-736-7828 or [email protected].

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