Green Building & Environmental Trends : Green Building & Construction LEED AP Consulting : Rich Cartlidge : Environmental Trends, Urban Development

This past weekend I had the opportunity to have an excellent conversation with Chris Cheatham of GBLU and Shari Shapiro of GBLB regarding green roofs. The conversation was started by Shari when she posted an article addressing green roofs and their risk for fire potential. Brian Phelps provided an excellent paper addressing green roofs in general and highlighted a section of the paper addressing the fire potential of green roofs which rebuts the article posted by Shari.

While I had previously considered the potential problems with green roofs such as leaks, collapse, and corrosion I had never contemplated a green roof as a potential fire hazard. I suppose part of my failure to consider the risk of a fire potential with a green roof is the key phrase "green" as in properly irrigated and not likely to ignite. However, imagine a green roof gone dry, particularly a green roof which is accessible by building occupants. A dry "green" roof, a stray cigarette, and a urban brush fire! Possible, but highly unlikely. In fact the evidence presented in Christine Robertson's paper suggests that in Germany where green roofs are extensively used there has never been a green roof fire and that as a result green roofs are associated with a 10-20% discounted rate on fire insurance. Likewise, Ms. Robertson's paper suggests  that the threat of fire
is 15-20 times higher on bare roofs with fully adhered bituminous waterproofing membranes
than on extensive green roofs with grasses, perennials and sedums.

Keep tuned to Konstructr for the input of Mark Rabkin a knowledgeable insurance guru and risk management profession who will be chiming in with green roofs from an insurance perspective in the near future.

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Chris is a lawyer at the Richmond, VA firm, DurretteBradshaw, PLC, and is a member of Virginia's Legal Elite in Construction Law. Chris specializes in mechanic's liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.

First, I need to say thank you to Rich for the great invitation to post here at GBET. Rich was kind enough to guest post at my Construction Law Musings blog and I am thrilled to return the favor.

As I study for the LEED AP exam and look at the issues surrounding the new construction landscape and “LEEDigation” (thanks to my friend Chris Cheatham for this term. I wish I’d thought of it). I feel the need to expand the discussion beyond what I believe has become too narrow a focus on “green” issues in building and law.

While the issues of the effects of third party verification, bonding, insurance, environmental issues, and contract drafting have rightfully focused on this growing economic and environmental trend, I do not think that we can drop our focus on more basic risk management issues. 

Without a broader view of the inherent legal and insurance risks in any construction project (large or small), the basics may get lost. Regardless of the unique issues relating to a project that seeks to meet a certain “green” benchmark (whether LEED, Green Globes or otherwise), contractors still need to be aware of the underlying legal risks and focus their efforts and contracts accordingly. 

The brave new world of sustainable building only adds an additional layer to the risk management techniques that are as old as construction itself. A contractor still needs liability insurance, still needs to make sure that payment flows well, still needs to be ready to file a mechanic’s lien or Miller Act claim if necessary, and still needs to make sure the scope of work is very well defined in a contract. 

Consulting with an attorney that is well versed in practical, on the ground, risk management from a general perspective will get a contractor 90% of the way toward the goal of sound business and contractual practice. Once this layer is established, a contractor will have a great base on which to “sustainably” build its “green” construction practice.

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It is my honor this week to have Mark Rabkin of Althans Insurance Agency present a guest post dealing with green building and the surety. The issues surrounding green building and the various bonding and insurance issues remain an enigma to many of us but Mark definitely has his finger on the pulse of the issue and is an invaluable resource for anyone involved in the construction industry. Mark is very active on Twitter where he can be contacted @MeRabkin.

When a large, publicly funded construction project is sent out to bid, each contractor that is vying for a piece of the pie must submit a bid and performance bond in conjunction with their application. The bid and performance bond is underwritten by a surety company and provides a financial guarantee to the owner of the project that the contractor will comply with the terms of the construction contract. Should a contractor fail to perform, the surety company will either pay the current contractor to complete the project or hire another contractor to either fix the errors caused by the first or complete the job if the original contractor becomes insolvent. The surety company will then pursue the original contractor to collect on the defaulted amount. 

As indicated above, a surety bond is meant to guarantee the performance of a contractor as per the construction contract. The surety underwriters evaluate a “risk” based on their financial position, overall industry expertise including managerial experience and familiarity with the construction methods upon which they are bidding. It is important to note that the most critical component of a final bond is the actual contract that is entered into between the various parties involved. Should the contract contain language that is onerous to either party, a surety will either refuse to bond the contract or seek to have that specific language excluded or stricken from the contract. For example, extended warranty periods or usurious liquidated damages clauses are significant red flags to surety underwriters and legal departments.

Building projects that are registered for certification by an independent third party such as the US Green Building Council are rapidly growing in number. Many federal, state and municipal entities now either require or encourage new construction, major renovation or leased space to demonstrate some level of environmental stewardship throughout the construction process or energy efficiency within the subsequent operation of the facility. There has been much debate within risk management circles regarding the possibility that a project could fail to either achieve certification or attain a specified level of achievement. These situations could result in lost revenue opportunities for the loss of tenants, lost tax incentives, utility expenses higher than promised or any other failure to achieve an expected benefit of the proposed project. To protect themselves, project owners will look to transfer the risk to the design team or construction contractors and subcontractors. It should be noted that most if not all sureties will refuse to bond a contract that contains language that guarantees certification by a third party entity such as the US GBC or seeks to guarantee a specific level of energy efficiency.

Traditional general liability insurance defends and protects contractors for bodily injuries or property damage caused by the insured party’s negligence. It does not provide for defense or indemnification for claims due to breach of contract. Should a third party claim financial injury due to the negligence of a contractor, professional liability coverage (also called errors and omissions) could respond. This coverage is available in the market for construction companies and is increasingly necessary as more contractors are obtaining accreditation as “specialists” upon successfully earning their LEED-AP designations. 

Mark E. Rabkin is a triple bottom line risk manager for Althans Insurance Agency in Cleveland, Ohio. He counsels clients on the risks faced everyday that impact his client’s financial, social and environmental exposures.

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